SEC Approves Short Selling Restrictions
The Securities and Exchange Commission today adopted a new rule to place certain restrictions on short selling when a stock is experiencing significant downward price pressure. The measure is intended to promote market stability and preserve investor confidence.
This alternative uptick rule is designed to restrict short selling from further driving down the price of a stock that has dropped more than 10 percent in one day. It will enable long sellers to stand in the front of the line and sell their shares before any short sellers once the circuit breaker is triggered.
"The rule is designed to preserve investor confidence and promote market efficiency, recognizing short selling can potentially have both a beneficial and a harmful impact on the market," said SEC Chairman Mary L. Schapiro. "It is important for the Commission and the markets to have in place a measure that creates certainty about how trading restrictions will operate during periods of stress and volatility."
Short selling involves the selling of a security that an investor does not own or has borrowed. When shorting a stock, the investor expects that he or she can buy back the stock at a later date for a lower price than it was sold for. Rather than buying low and selling high, the investor is hoping to sell high and then buy low. Short selling can serve useful market purposes, including providing market liquidity and pricing efficiency. However, it may also be used improperly to drive down the price of a security or to accelerate a declining market in a security.
The alternative uptick rule (Rule 201) approved today imposes restrictions on short selling only when a stock has triggered a circuit breaker by experiencing a price decline of at least 10 percent in one day. At that point, short selling would be permitted if the price of the security is above the current national best bid.
Rule 201 includes the following features:
The rule will become effective 60 days after the date of publication of the release in the Federal Register, and then market participants will have six months to comply with the requirements. (Press Rel. 2010-26)
SEC Approves Statement on Global Accounting Standards
The Securities and Exchange Commission today voted to issue a statement that lays out its position regarding global accounting standards and makes clear that the Commission continues to believe that a single set of high-quality globally accepted accounting standards would benefit U.S investors.
As a step toward achieving the goal of a single set of high-quality global accounting standards, the statement notes that the Commission continues to encourage the convergence of U.S. Generally Accepted Accounting Principles (U.S. GAAP) and International Financial Reporting Standards (IFRS) in order to narrow the differences between the two sets of standards.
"For nearly 30 years, the Commission has promoted a single set of high-quality globally accepted accounting standards, which would advance the dual goals of improving financial reporting within the U.S. and reducing country-by-country disparities in financial reporting," said SEC Chairman Mary L. Schapiro. "But supporting this goal is only the beginning of the discussion, not the end."
The Commission also directed its staff to execute a Work Plan, the results of which will aid the Commission in its evaluation of the impact that the use of IFRS by U.S. companies would have on the U.S. securities market. Included in this Work Plan will be consideration of IFRS, as it exists today and after the completion of various "convergence projects" currently underway between U.S. and international accounting standards-setters. By 2011, assuming completion of these convergence projects and the staff's Work Plan, the Commission will decide whether to incorporate IFRS into the U.S. financial reporting system, and if so, when and how.
In November 2008, the Commission proposed a series of milestones (also known as the Proposed Roadmap) that would guide the Commission in determining whether to transition U.S. capital markets to IFRS.
After proposing the Roadmap, the Commission received more than 200 comment letters from a wide variety of market participants, including those representing investors, regulators, issuers, accountants, attorneys, academia, standards setters, and international organizations.
Commenters expressed widespread support for the goal of having a single set of high-quality globally accepted accounting standards, but differed in their views about the approach in the Proposed Roadmap.
Therefore, the Commission's statement indicates that it is important to carefully consider and deliberate whether such a change is in the best interest of U.S. investors and markets.
Among other things, the staff's Work Plan will address many of the issues highlighted by commenters, including:
The SEC staff will provide public progress reports on the Work Plan, as well as the status of the FASB and IASB convergence projects, beginning no later than October 2010 and frequently thereafter until the work is complete.
Commenters on the Proposed Roadmap also expressed a view that U.S. companies would need approximately a four- to five-year timeframe to successfully implement a change in their financial reporting systems to incorporate IFRS. Therefore, if the Commission determines in 2011 to incorporate IFRS into the U.S. financial reporting system, the first time that U.S. companies would report under such a system would be no earlier than 2015. The Work Plan would further evaluate this timeline. (Press Rel. 2010-27)
In the Matter of Jonathan Aronica
On Feb. 23, 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 (Order) against Jonathan Aronica (Aronica), a former registered representative and registered principal of eWealth Securities, Inc. (eWealth). The Order finds that the United States District Court for the Southern District of New York entered a permanent injunction by consent against Aronica on Jan. 14, 2010 in the civil action entitled Securities and Exchange Commission v. eWealth, et al., 02-CV-8626 (SHS). The injunction enjoined Aronica from future violations of Sections 5 and 17(a) of the Securities Act of 1933 and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.
The Order further finds that that the Commission's complaint in the civil action alleged that from January 2000 through July 2002 Aronica participated in the fraudulent offer and sale of over $7 million in unregistered eWealth Holdings, Inc. securities to approximately one hundred individuals. Based on the above, the Order bars Aronica from association with any broker or dealer. Aronica consented to the issuance of the Order without admitting or denying any of the findings in the Order. (Rel. 34-61572; File No. 3-13789)
Commission Revokes Registration of Securities of Mannix Resources, Inc. (f/k/a Ridel Resources, Ltd.) for Failure to Make Required Periodic Filings
On Feb. 24, 2010, the Commission revoked the registration of each class of registered securities of Mannix Resources, Inc. (f/k/a Ridel Resources, Ltd.) (Mannix Resources) for failure to make required periodic filings with the Commission.
Without admitting or denying the findings in the Order, except as to jurisdiction, which it admitted, Mannix Resources consented to the entry of an Order Making Findings and Revoking Registration of Securities Pursuant to Section 12(j) of the Securities Exchange Act of 1934 as to Mannix Resources, Inc. (f/k/a Ridel Resources, Ltd.) finding that it had failed to comply with Section 13(a) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 13a-1 and 13a-16 thereunder and revoking the registration of each class of Mannix Resources' securities pursuant to Section 12(j) of the Exchange Act. This order settled the proceedings brought against Mannix Resources in In the Matter of Macheezmo Mouse Restaurants, Inc., et al., Administrative Proceeding File No. 3-13759.
Brokers and dealers should be alert to the fact that Exchange Act Section 12(j) provides, in pertinent part, as follows:
No member of a national securities exchange, broker, or dealer shall make use of the mails or any means or instrumentality of interstate commerce to effect any transaction in, or to induce the purchase or sale of, any security the registration of which has been and is suspended or revoked . . . .
For further information Order Instituting Administrative Proceedings and Notice of Hearing Pursuant to Section 12(j) of the Securities Exchange Act of 1934, In the Matter of Macheezmo Mouse Restaurants, Inc., et al., Administrative Proceeding File No. 3-13759, Exchange Act Release No. 61396, Jan. 21, 2010. (Rel. 34-61576; File No. 3-13759)
SEC Obtains Final Judgments Against 12 Defendants in Penny Stock Scheme
The Securities and Exchange Commission announced that the court has entered final judgments against nine defendants and three relief defendants in connection with a penny stock scheme orchestrated by Frank J. Custable, Jr. Filed on March 28, 2003 as an emergency TRO action, the Commission's complaint alleged that, for the period from at least Nov. 2001 until the commencement of the Commission's action, Frank J. Custable Jr. and others engaged in a scheme to violate the registration, antifraud and reporting violations of the federal securities laws through the use of unregistered and fraudulent penny stock offerings. The complaint alleged that Custable accomplished this by obtaining and dumping massive quantities of improperly registered shares of stock of at least seven different penny stock companies on the general public, generating proceeds to Custable of at least $4.3 million. The complaint further alleged that Custable fraudulently concealed his ownership interest in the seven penny stocks by having various entities and persons he controlled engage in a host of securities transactions on his behalf. The complaint alleged that Custable obtained stock through fraudulent Form S-8 registrations (normally intended to allow distribution of securities to employees and consultants), fraudulent manipulations of Rule 144(k) holding requirements for resales of restricted stock, and through a scheme to counterfeit nearly half of the outstanding stock in Innovations Holdings, Inc., then known as "Blagman Media International, Inc." In addition to charging Custable and certain of his employees, the Commission also charged certain of the penny stock companies and their officers with securities fraud and registration violations. Custable has pled guilty to various federal charges arising conduct in the scheme, and on June 9, 2009 was sentenced to a prison term of 21 years.
On Jan. 28, 2010, Judge Joan B. Gottschall of the U.S. District Court for the Northern District of Illinois issued final judgments, by default, against: (i) Suburban Capital Corporation, the entity through which Custable perpetrate his scheme; (ii) Blagman Media International, Inc. (now doing business as Marketing Concepts International, Inc.), one of the penny stock company defendants with whom Custable perpetrate his scheme; (iii) Wasatch Pharmaceutical, Inc., another penny stock company defendant; (iv) ThermoElastic Technologies, Inc. (now doing business as Wannigan Capital Corp.), a third penny stock company defendant; (v) and three relief defendants to which Custable transferred ill-gotten stock and sale proceeds - Active Investments, Inc., Pine Services, Ltda., and Sothis III, LDC. The final judgments permanently enjoin Suburban Capital, Wasatch and ThermoElastic from violations of Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933, and Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934, and enjoin Blagman Media from violations of Section 5(a) and 5(c) of the Securities Act. The Court also barred Suburban Capital from engage in any future penny stock offering. The Court ordered Suburban Capital to disgorge ill-gotten gains amounting to $3,447,617, plus prejudgment interest thereon in the amount of $1,667,026.67, for a total monetary judgment of $5,114,644.47. The Court ordered Blagman Media to disgorge $803,500, plus prejudgment interest of $388,516.39, for a total of $1,192,016.39. The Court ordered Wasatch to disgorge $779,065, plus prejudgment interest of $376,701.31, for a total of $1,155,766.31. The court ordered disgorgement and prejudgment interest totaling $506,774.32 against Active Investments, $224,275.08 against Pine Services, and $33,300.79 against Sothis II.
On Feb. 12, 2010, the court entered final judgments, by consent, against defendants Sara Wetzel (an employee of Custable) and David Giles (the former Chief Operating Officer of Wasatch), permanently enjoining them from violations of Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933, and Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934, and barring them from participating an any future penny stock offering. The judgment against Giles also bars him from serving as an officer or director of a public company. The judgment against Wetzel requires her to pay disgorgement of $56,500, prejudgment interest of $27,739, and a civil penalty of $120,000. Wetzel and Giles consented to the entry of these judgments without admitting or denying the allegations in the complaint. Wetzel and Giles also pled guilty in the related criminal actions for their roles in Custable's scheme. Each was sentenced to five years probation.
Previously, on Oct. 8, 2009, the court entered final judgments, by consent, against defendants Robert Blagman (the former CEO of Blagman Media), Pacel Corporation, Marshall Holdings International, Inc, and its former CEO, Richard Bailey. Those judgments permanently enjoin each of the defendants from violations of Section 5(a) and (c) of the Securities Act, and additionally permanently enjoin defendants Pacel, Bailey and Marshall Holdings from violations Section 17(a) of the Securities Act, and Section 10(b) and Rule 10b-5 of the Exchange Act. The judgment against Bailey also bars him, for a period of five years, from acting as an officer or director of a publicly held company. The judgment against Blagman orders him to pay disgorgement in the amount of $250,000, prejudgment interest of $83,934, plus a civil penalty in the amount of $50,000. The judgment against Pacel requires it to pay disgorgement in the amount of $200,000, plus prejudgment interest of $96,459. Blagman, Bailey, Marshall Holdings and Pacel all consented to the entry of these final judgments against them without admitting or denying the allegations in the complaint.
For further information, see LR-18057 (March 31, 2003). [SEC v. Frank J. Custable, Jr., Case No. 03-CV-2182, USDC, N.D. Ill.] (LR-21423)
Immediate Effectiveness of Proposed Rule Changes
A proposed rule change filed by New York Stock Exchange (SR-NYSE-2010-08) repealing the temporary provision that allows the exchange to report multiple closing prints to the consolidated tape when a closing transaction exceeds 99,999,999 shares 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. 34-61559)
A proposed rule change filed by NASDAQ OMX PHLX, as modified by Amendment No. 1, relating to routing fees (SR-Phlx-2010-19) 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. 34-61570)
Accelerated Approval of Proposed Rule Change
The Commission approved on an accelerated basis, a proposed rule change submitted by the Financial Industry Regulatory Authority (SR-FINRA-2009-065) as modified by Amendment No. 1 thereto, to require the reporting of transactions in asset-backed securities to TRACE. Publication is expected in the Federal Register during the week of February 22. (Rel. 34-61566)
Proposed Rule Change
The Commission issued notice of filing of a proposed rule change (SR-NYSEAmex-2010-09) submitted by NYSE Amex pursuant to Rule 19b-4 under the Securities Exchange Act of 1934, amending its trust unit rules and proposing the listing of the Nuveen Diversified Commodity Fund. Publication is expected in the Federal Register during the week of February 22. (Rel. 34-61571)
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