SEC Announces Efforts to Educate Investors About Participating in Corporate Elections
Amends Proxy Rules to Offer "E-Proxy" Flexibility
Launches New Web Page Dedicated to Educating Investors About Proxy Matters
On Feb. 22, 2010, the Securities and Exchange Commission announced a series of steps to educate investors about proxy voting and support greater investor participation in corporate elections.
The series of measures include amending the SEC's e-proxy rules, issuing an Investor Alert, and creating new Internet resources that explain the proxy voting process in plain language.
"Investor participation in elections at companies they own is critical to effective corporate governance," said SEC Chairman Mary L. Schapiro.
Last year, the Commission approved a change to the New York Stock Exchange rule that previously allowed brokers the discretion to vote shares held in customer accounts in an uncontested election of directors without receiving voting instructions from those customers. Now, brokers can only vote those shares in elections at companies if they are instructed by their customers. The change does not apply to mutual funds or certain closed end funds.
"The recent changes to the voting rules for the election of directors have increased the importance of voter participation," added Chairman Schapiro.
To support shareholder participation in corporate elections and help educate investors about how the voting process works, the Commission has:
"The right to vote in corporate elections is a key investor right," said Lori Schock, Director of the SEC's Office of Investor Education and Advocacy. "We designed these new resources to help investors better understand the materials they will receive in connection with annual meetings of shareholders and how to vote by proxy in corporate elections." (Press Rel. 2010-23)
SEC Staff to Hold Seminar to Help Companies Comply With XBRL Reporting Rules
Securities and Exchange Commission staff will conduct a public seminar next month to help companies and preparers comply with rules that require financial reports to be filed using eXtensible Business Reporting Language, (XBRL), which can provide investors quicker access to the data they want in a format that's easily used, searched and analyzed.
The seminar will help answer frequently asked questions about the rules and technology requirements. SEC staff will present information to help corporate filers understand how to comply with the rules.
SEC staff also will provide an overview of the XBRL taxonomy - the list of tags associated with Generally Accepted Accounting Principles (U.S. GAAP). Staff also will discuss the recently announced role of the Financial Accounting Foundation in maintaining that taxonomy in conjunction with its GAAP standard-setting activities. SEC staff will provide guidance on other tools and information available to assist with compliance.
To ensure that the seminar is responsive to the needs of companies and preparers, the SEC staff is seeking suggested questions and topics to be discussed at the seminar. Interested parties should e-mail their questions to Ask-OID@sec.gov and include "Public Education Seminar" in the subject line.
The seminar will be held on March 23 beginning at 1 p.m. ET in the auditorium at the SEC's headquarters (100 F Street N.E. in Washington D.C.). The event also will be webcast on the SEC Web site.
Seating for the seminar will be on a first-come, first-served basis. Reasonable accommodations for persons with disabilities attending this event in person can be arranged by submitting a request to DisabilityProgramOfficer@SEC.gov three business days prior to the event. Captioning will provided on the SEC webcast.
For additional information about the seminar, contact Ask-OID@sec.gov or (202) 551-4144. (Press Rel. 2010-25)
RULES AND RELATED MATTERS
Money Market Fund Reform
The Securities and Exchange Commission adopted comprehensive rule amendments to significantly strengthen the regulatory framework for money market funds, increase their resilience to certain short-term market risks, and reduce the risks of runs on the funds. Among other things, the amendments will tighten the risk limiting conditions of Rule 2a-7 (the rule governing money market funds), require money market funds to report their portfolio holdings each month, and permit a money market fund that is about to "break the buck" (i.e., re-price its securities below $1.00 per share) and decides to liquidate to suspend redemptions and postpone payment of redemption proceeds to facilitate an orderly liquidation.
The effective date for the rule amendments is May 5, 2010. (Rel. IC-29132)
In the Matter of Mark J. Harrington
On Feb. 22, 2010, the Commission issued an Order Instituting Administrative Proceedings Pursuant to Section 203(f) of the Investment Advisers Act of 1940, Making Findings and Imposing Remedial Sanctions (Order) against Mark J. Harrington (Harrington). The Order finds that from at least August 2000 to January 2009, Harrington served as a vice president and controller of Anchor Capital Advisors, LLC (Anchor), an investment adviser registered with the Commission. The Order further finds that on April 14, 2009, Harrington pled guilty to ERISA Theft and Embezzlement in violation of Title 18 of the United States Code, Section 664, before the United States District Court for the District of Massachusetts, in U.S. v. Mark J. Harrington, Criminal No. 09-10086-PBS; and that on July 23, 2009, a judgment in a criminal case was entered against Harrington, who was sentenced to 24 months imprisonment followed by 24 months of supervised release and ordered to make restitution in the amount of $349,887.04. The Order further finds that the count of the criminal information to which Harrington pled guilty alleged, inter alia, that Harrington embezzled, stole, and unlawfully and willfully converted approximately $368,711.70, which belonged to Anchor's 401(k) Profit Sharing and Retirement Plan, an employee pension benefit plan and a fund connected with an employee pension benefit plan subject to Title I of the Employee Retirement Income Security Act of 1974.
Based on the above, the Order bars Harrington from association with any investment adviser. Harrington consented to the issuance of the Order without admitting or denying any of the findings therein, except as to the entry of the judgment. (Rel. IA-2986; File No. 3-13788)
In the Matter of Axiom Capital Management, Inc.
On Feb. 22, 2010, the Commission issued an Order Instituting Administrative Proceedings Pursuant to Section 15(b) of the Securities Exchange Act of 1934, Making Findings and Imposing Remedial Sanctions as to Axiom Capital Management, Inc. (Order). The Order finds that from early 2005 through approximately September 2006, Axiom failed reasonably to supervise Gary J. Gross, a former Axiom registered representative who violated Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The Order finds, among other things, that Gross made unsuitable investment recommendations of private placements and other investments to a portion of his customers, who were elderly, retired with limited annual income, and risk-averse.
The Order finds that Axiom failed to have a reasonable system to implement its policies and procedures with respect to suitability review of private placements to address whether Gross's recommendations were suitable in light of his customers' investment objectives, risk tolerance, and other holdings. The Order further finds that Axiom had no system, when conducting suitability reviews after the purchase of a private placement, for consideration of whether a new recommendation was suitable for a customer in light of that customer's other holdings. Axiom consented to the issuance of the Order without admitting or denying the findings therein.
Based on the above, the Order censures Axiom, requires Axiom to hire an independent consultant, and orders Axiom to pay a civil penalty of $60,000. (Rel. 34-61563; File No. 3-13786)
In the Matter of David V. Siegel
On Feb. 22, 2010, 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 (Order) against David V. Siegel. The Division of Enforcement (Division) alleges in that Order that from early 2004 through approximately September 2006, Siegel, a former branch manager at broker-dealer Axiom Capital Management, Inc., failed reasonably to supervise former Axiom registered representative Gary J. Gross, who violated Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The Division alleges that Gross engaged in several abusive sales practices, including, among others, unauthorized trading for customers, churning customer investments, and making unsuitable investment recommendations to customers.
The Division further alleges that Siegel failed to follow both Axiom's written supervisory procedures manual and an internal Axiom memorandum related to Siegel's supervision of Gross. The Division also alleges, among other things, that Siegel did not reasonably monitor Gross' orders for unauthorized transactions or churning, and failed to review Gross' customers' private placement transactions and subsequent investments for suitability.
A hearing before an administrative law judge will be scheduled to determine whether the allegations in the Order are true, to provide Siegel an opportunity to respond to these allegations, and to determine what, if any, remedial action is appropriate in the public interest. The Order directed the Administrative Law Judge to issue an initial decision within 300 days from the date of service of the Order. (Rel. 34-61564; IA-2985; File No. 3-13787)
In the Matter of PCC Group, Inc.
An Administrative Law Judge has issued an Order Making Findings and Revoking Registrations by Default as to Nine Respondents (Default Order) in PCC Group, Inc., Administrative Proceeding No. 3-13762. The Order Instituting Proceedings alleged that the nine Respondents failed repeatedly to file required annual and quarterly reports while their securities were registered with the Securities and Exchange Commission. The Default Order finds these allegations to be true as to these Respondents and revokes the registrations of each class of registered securities of PCC Group, Inc., Play Co. Toys & Entertainment Corp., Point West Capital Corp., Power Spectra, Inc., Preference Technologies, Inc., Preferred Financial Resources, Inc. (n/k/a Copper Financial Resources, Inc.), Pro-Market Global plc, Progenitor, Inc., and PSA, Inc. (n/k/a Shearson American REIT, Inc.), pursuant to Section 12(j) of the Securities Exchange Act of 1934. Respondent Purchasesoft, Inc., previously submitted a signed Offer of Settlement that the Commission accepted. PCC Group, Inc., Exchange Act Release No. 34-61525 (Feb. 17, 2010). (Rel. 34-61569; File No. 3-13762)
Court Enters Summary Judgment against Insider Trading Defendants Shane Bashir Suman and Monie Rahman
The Securities and Exchange Commission announced today that on Feb. 11, 2010, the United States District Court for the Southern District of New York entered summary judgment against defendants Shane Bashir Suman and Monie Rahman, two Canadian citizens the Commission had charged with insider trading in 2007.
The judgment permanently enjoins Suman and Rahman from further violations of Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3 thereunder, and Section 17(a) of the Securities Act of 1933. It further orders Suman and Rahman to disgorge, jointly and severally, their ill-gotten gains of $1,039,440 plus prejudgment interest. Finally, the judgment imposes civil penalties of $2,000,000 against Suman of $1,000,000 against Rahman.
The Commission's complaint, filed on July 24, 2007, alleged that Suman and Rahman traded on material, nonpublic information involving MDS, Inc.'s impending tender offer for the shares of Molecular Devices Corp., then based in Sunnyvale, California, in late January 2007. The court found that Suman learned about secret merger negotiations through access he had to electronic data in his job as an information technology specialist at Ontario-based MDS. In particular, Suman was able to read the contents of confidential e-mails and other electronic data without detection. By Jan. 23, 2007, Suman had learned enough to start conducting Internet searches for the internal corporate code name for the MDS-Molecular merger as well as for Molecular Devices itself. Shortly after running those searches, Suman called Rahman, who was then living in Utah, and spoke to her for an unusually long time.
Between Jan. 24 and Jan. 26, 2007, Suman and Rahman bought 12,000 Molecular shares and 900 Molecular call options. Some of these purchases were financed with a margin loan of approximately $200,000, and the couple previously did not have a position in Molecular securities. On Jan. 29, 2007, MDS and Molecular jointly announced the tender offer for Molecular's shares. The stock price immediately rose from almost $24 to roughly $35, generating trading profits to Rahman and Suman of more than $1 million. [SEC v. Suman, et al., 07-CV-6625 (WHP) (S.D.N.Y.)] (LR-21419)
SEC Charges Two Sacramento Men With Defrauding Real Estate Fund Investors of Millions of Dollars
The Securities and Exchange Commission today charged two Sacramento-area men with misappropriating approximately $10 million from more than 100 investors who were falsely promised that their money would be loaned to homebuyers and secured by real estate deeds of trust.
According to the SEC's complaint, filed in federal court in Sacramento, Lawrence "Lee" Loomis attracted investors to "Loomis Wealth Solutions" seminars held in 2007 and 2008 through newspaper advertisements and direct mailings. Loomis solicited seminar attendees to invest in two investment funds called the "Naras Secured Funds," claiming the "liquid high-yield" funds would make short-term secured loans to homebuyers, yielding 12 percent guaranteed returns to investors. The SEC alleges that, contrary to Loomis' promises, the loans were primarily used to pay such operating expenses as payroll, utilities, and travel expenses for several other businesses owned by Loomis, and to prop up a related real estate scheme. The SEC also alleges that the loans were not secured by real estate deeds of trust as Loomis had claimed. Loomis' father-in-law, John Hagener, who managed the two funds, allegedly facilitated the scheme by transferring investors' money to accounts that he knew were being used to fund the other businesses. Hagener also allegedly sent investors fake account statements falsely stating that their investments had earned 12 percent returns. The SEC further alleges that Loomis paid himself hundreds of thousands of dollars from companies that received investor money and Hagener received more than $190,000 for managing the funds even though he was misappropriating investors' money to fund other businesses.
In its federal court action against Loomis, Hagener, Loomis Wealth Solutions, LLC, and Lismar Financial Services, LLC (Lismar), the SEC alleges Loomis, LWS, Hagener and Lismar violated Sections 5(a), (c), and 17(a) of the Securities Act of 1933 (Securities Act) and Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder. The SEC also alleges Hagener and Lismar violated Sections 206(1), 206(2), and 206(4) of the Advisers Act and rule 206(4)-8 thereunder, and, in the alternative, that Hagener aided and abetted LWS, Loomis and Lismar's violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and Lismar's violations of Sections 206(1), 206(2), and 206(4) of the Advisers Act, and Rule 206(4)-8 thereunder. The SEC seeks injunctive relief, disgorgement of ill-gotten gains, and monetary penalties. [SEC v. Lawrence "Lee" Loomis, et al., Case No. 2:10-CV-00458-MCE-KJN (E.D. CA)] (LR-21422)
INVESTMENT COMPANY ACT RELEASES
ShariahShares Exchange-Traded Fund Trust, et al.
An order has been issued on an application filed by ShariahShares Exchange-Traded Fund Trust, et al. The order permits (a) certain open-end management investment companies and their series, to issue shares (Fund Shares) that can be redeemed only in large aggregations (Creation Unit Aggregations); (b) secondary market transactions in Fund Shares to occur at negotiated prices; (c) certain series to pay redemption proceeds, under certain circumstances, more than seven days after the tender of Fund Shares for redemption; (d) certain affiliated persons of the series to deposit securities into, and receive securities from, the series in connection with the purchase and redemption of Creation Unit Aggregations; and (e) certain registered management investment companies and unit investment trusts outside of the same group of investment companies as the series to acquire Fund Shares. (Rel. IC-29130 - February 22)
Proposed Rule Change
The Commission has published notice of a proposed rule change (FINRA-2010-005) filed by the Financial Industry Regulatory Authority to repeal Incorporated NYSE Rule 405(4) (Common Sales Accounts). Publication is expected in the Federal Register during the week of February 22. (Rel. 34-61543)
Approval of Proposed Rule Change
The Commission approved a proposed rule change, as modified by Amendment No. 1 thereto, submitted by BATS Exchange (SR-BATS-2009-032) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 to amend BATS Fee Schedule to impose fees for physical ports used to connect to BATS Exchange. Publication is expected in the Federal Register during the week of February 22. (Rel. 34-61545)
Immediate Effectiveness of Proposed Rule Changes
A proposed rule change filed by New York Stock Exchange (SR-NYSE-2010-09) extending the time allowed to temporarily suspend certain NYSE requirements relating to the closing of securities on the Exchange pursuant to NYSE Rule 123C(8)(a)(1) 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 February 22. (Rel. 34-61549)
A proposed rule change filed by the Chicago Board Options Exchange (SR-CBOE-2010-017) to amend the CBOE Stock Exchange fees schedule to increase the maker rebate for transactions in securities priced less than $1 to 0.25% of the dollar value of the transaction 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 February 22. (Rel. 34-61550)
A proposed rule change filed by NASDAQ OMX PHLX relating to modification of fees (SR-Phlx-2010-16) 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 February 22. (Rel. 34-61558)
JOINT INDUSTRY PLAN RELEASES
Immediate Effectiveness of Amendment to the Options Order Protection and Locked/Crossed Market Plan
A proposed amendment to the Options Order Protection and Locked/Crossed Market Plan (4-546) filed by the BATS Exchange pursuant to Section 11A(a)(3) of the Securities Exchange Act to add BATS Exchange as a Participant has become effective. Publication is expected in the Federal Register during the week of February 22. (Rel. 34-61546)
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