Closed Meeting - Thursday, March 18, 2010 - 2:00 p.m.
The subject matter of the Closed Meeting scheduled for Thursday, March 18, will be: institution and settlement of injunctive actions; institution and settlement of administrative proceedings; collection matters; consideration of amicus participation; and other matters relating to enforcement proceedings.
At times, changes in Commission priorities require alterations in the scheduling of meeting items. For further information and to ascertain what, if any, matters have been added, deleted or postponed, please contact: The Office of the Secretary at (202) 551-5400.
Dan Wise Sanctioned
Dan Wise, aka Danny Wise (Wise), of the Scottsdale, Arizona, area, has been barred from association with any investment adviser. The sanction was ordered in an administrative proceeding before an administrative law judge, following a court-ordered injunction against him. In December 2009, Wise was enjoined from violating the antifraud provisions of the federal securities laws. He and entities that he controlled had raised approximately $67 million from approximately 125 investors, using fraudulent representations as to the safety and terms of the proposed investments. (Rel. IA-2996; File No. 3-13766)
In the Matter of in Management Graphics, Inc.
An Administrative Law Judge has issued an Order Making Findings and Revoking Registrations by Default as to Seven Respondents (Default Order) in Management Graphics, Inc., Administrative Proceeding No. 3-13772. The Order Instituting Proceedings (OIP) alleged that eight 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 seven Respondents. It revokes the registrations of each class of registered securities of Marine Shuttle Operations, Inc., Marketing Specialists Corp., Mas Acquisition XII Corp., MDCM Holdings, Inc. (f/k/a Mortgage.com, Inc.), MerchantOnline.com, Inc., Met Capital Corp., and Micro-ASI, Inc., pursuant to Section 12(j) of the Securities Exchange Act of 1934.
The Commission has previously accepted an Offer of Settlement from Management Graphics, Inc., the other Respondent named in the OIP. (Rel. 34-61687; File No. 3-13772)
In the Matter of Robert John Hipple
On March 11, 2010, the Commission issued an Order Making Findings and Imposing Remedial Sanctions and a Cease-and-Desist Order Pursuant to Section 21C of the Securities Exchange Act of 1934, Sections 9(b) and 9(f) of the Investment Company Act of 1940, and Rule 102(e)(1) of the Commission's Rules of Practice (Order). The Order finds that Hipple is an attorney licensed in Florida and Georgia, and that he and an associate controlled the management and operations of iWorld Projects and Systems, Inc. (iWorld Florida), a private Florida company, when it was acquired in early 2005 by iWorld Projects & Systems, Inc. (iWorld), a business development company. The Order further finds that Hipple, in his capacity as CEO and CFO of iWorld, failed to institute or circumvented internal controls and falsified books and records when he fraudulently overstated the value of iWorld's primary asset - its investment in several portfolio companies - in three consecutive quarterly Commission filings in 2005, and that Hipple, who personally performed iWorld's accounting and financial reporting functions, misled iWorld's auditors into believing that the company had independently evaluated the worth of its portfolio companies.
The Order finds that Hipple willfully violated Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 10b-5, 13a-14, 13b2-1, and 13b2-2 thereunder, and Sections 34(b) and 57(a) of the Investment Company Act of 1940 (Investment Company Act). The Order further finds that, as a result of the foregoing, Hipple willfully aided and abetted and caused iWorld's violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 13a-11, 13a-13 and 12b-20 thereunder, and Section 31(a) of the Investment Company Act and Rule 31a-1 thereunder.
Based on the above, the Commission orders Hipple to cease and desist from committing or causing any violations and any future violations of Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5, 13b2-1, 13b2-2, and 13a-14 thereunder, and Sections 34(b) and 57(a) of the Investment Company Act, and from causing any violations of and any future violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-11, and 13a-13 thereunder and Section 31(a) of the Investment Company Act and Rule 31a-1 thereunder. The Order prohibits Hipple, pursuant to Section 21C(f) of the Exchange Act, for a period of five years, from acting as an officer or director of any issuer that has a class of securities registered pursuant to Section 12 of the Exchange Act, or that is required to file reports pursuant to Section 15(d) of the Exchange Act. The Order also prohibits Hipple, 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, with the right to reapply for association after five years to the appropriate self-regulatory organization, or if there is none, to the Commission. Finally, the Order, pursuant to Rule 102(e)(1)(iii) of the Commission's Rules of Practice, denies Hipple the privilege of appearing or practicing before the Commission as an accountant. Without admitting or denying the Commission's findings in the Order, Hipple consented to the entry of the Order. (Rels. 34-61688; IA-29173; AAE Rel. 3120; File No. 3-13543)
In the Matter of Steven E. Nothern
On March 11, 2010, the Commission issued an Order Instituting Administrative Proceedings Pursuant Section 203(f) of the Investment Advisers Act of 1940, Making Findings, and Imposing Remedial Sanctions (Order) against Steven E. Nothern. The Order finds that on June 22, 2009, a jury found that Nothern violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The Order also finds that on March 10, 2010, the Court entered a final judgment by consent against Nothern permanently enjoining him from future violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. The Order further finds that Nothern was employed by and associated with Massachusetts Financial Services (MFS), an investment adviser registered with the Commission, and at the relevant time managed seven fixed-income funds for MFS. The Order also finds that the Commission filed a Complaint in the United States District Court for Massachusetts - Boston Division alleging that Nothern engaged in insider trading in United States Treasury 30-year bonds after Peter J. Davis, a Washington, D.C.-based consultant that MFS hired, tipped Nothern with material nonpublic information that the United States Treasury Department was going to suspend future issuances of the 30-year bond. The Order finds that the Complaint further alleged that while in possession of the information Davis provided, Nothern and three other MFS portfolio managers, whom Nothern tipped, purchased approximately $65 million in par value of 30-year bonds for the portfolios they managed, making approximately $3.1 million in trading profits for those portfolios.
Based on the above-listed findings, the Order bars Nothern from association with any investment adviser, with the right to reapply after five years. Nothern consented to the issuance of the Order without admitting or denying any of the findings except as to the entry of the final judgment and the finding by the jury that he violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. (Rel. IA-2997; File No. 3-13811)
In the Matter of Barron A. Mathis
On March 11, 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 Barron A. Mathis (Respondent). The Order finds that on Feb.11, 2010, an injunction was entered against the Respondent in SEC v. J.C. Reed & Company, Inc., J.C. Reed Advisory Group, LLC, Barron A. Mathis, and Estate of John C. Reed, Lana L. Reed, Executor, (Civil Action No. 3:08-1112) (M.D. Tenn.) (SEC v. J.C. Reed & Company, et al.), permanently enjoining him from future violations of Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder, and Section 206(1) and (2) of the Investment Advisers Act of 1940.
The Order further finds that the Commission's complaint in SEC v. J.C. Reed & Company, et al. alleged that between January 2007 and May 2008, the Respondent recommended the purchase of shares of J.C. Reed & Company, Inc. stock to clients and prospective clients of J.C. Reed Advisory Group, LLC knowing that J.C. Reed & Company, Inc. would pay him a five percent referral fee for sales of J.C. Reed & Company, Inc. stock, in direct contradiction of statements in the offering materials. The complaint also alleged that the Respondent sold unregistered securities.
Based on the above, the Order bars the Respondent from association with any investment adviser. The Respondent consented to the issuance of the Order without admitting or denying any of the findings in the Order, except he admitted the entry of the injunction. (Rel. IA-2998; File No. 3-13812)
SEC Charges Richard Verdiramo, Attorney Vincent L. Verdiramo, Recidivist Edward Meyer, Jr., and Victoria Chen for their Roles in a Fraudulent Share Issuance Scheme
On March 10, 2010, the Securities and Exchange Commission charged Richard Verdiramo with securities fraud and violating the registration provisions of the federal securities laws in connection with a scheme to issue shares of RECOV Energy Corporation for his own personal benefit and to benefit his father, attorney Vincent L. Verdiramo, Esq. The SEC's Complaint charges Vincent Verdiramo with aiding and abetting his son's fraud. In addition, the SEC's Complaint alleges that Vincent Verdiramo, Edward Meyer, Jr., and Victoria Chen violated the securities registration provisions and that Meyer engaged in insider trading in connection with his sales of RECOV stock.
The Complaint alleges that between February and August 2005, Richard Verdiramo, RECOV's then Chairman, CEO, President, and CFO, directed RECOV to issue more than three million shares in unregistered, non-exempt transactions to Meyer, Chen, and others. According to the Complaint, the issuances to Meyer and Chen were made pursuant to a contract under which Richard and Vincent L. Verdiramo agreed to sell Meyer and Chen a controlling interest in RECOV. At the time of the contract, RECOV was involved in merger negotiations with a private company which had hired Meyer as a merger consultant. Although Richard Verdiramo directed RECOV to issue unregistered shares to Meyer, Chen and others purportedly in conversion of RECOV notes payable, the Complaint alleges that Meyer and others paid Richard and Vincent Verdiramo at least $350,000 for the shares; monies which should have gone to RECOV.
The Complaint alleges that Vincent L. Verdiramo aided and abetted his son's fraudulent share issuance scheme by participating in negotiations regarding the sale and issuance of the shares, being a party to the contract with Meyer and Chen, and by using his attorney trust account to funnel the money Meyer and others paid for RECOV shares to a private company Richard and Vincent L. Verdiramo controlled.
The Complaint alleges that after directing these issuances, Richard Verdiramo signed three RECOV periodic reports filed with the Commission in 2005 that he knew, or was reckless in not knowing, contained materially false and misleading statements about RECOV's share issuances. As alleged, Richard Verdiramo falsely represented in these filings that RECOV had issued shares of common stock without restrictive legends in conversion of convertible notes payable and that the company had received an opinion from counsel that the shares could be issued without restrictive legends. The Complaint alleges that, in fact, Richard Verdiramo knew that the share issuances were not in conversion of convertible notes payable and were not supported by an attorney opinion.
The Complaint also alleges that Richard Verdiramo made false statements in RECOV periodic reports regarding a large restricted stock issuance he made to himself in April 2005 and subsequently cancelled in September 2005. In addition, the Complaint alleges that Richard Verdiramo failed to file a Schedule 13D and Form 4 with the Commission regarding this issuance to conceal his seizure of control of RECOV.
The Complaint further alleges that Meyer, Chen, and Vincent Verdiramo all sold illegally issued shares of RECOV in unregistered, non-exempt transactions for proceeds of at least $220,000, $45,000, and $30,000, respectively.
Finally, the Complaint alleges that in August 2005, Meyer sold RECOV shares while in possession of material, non-public information about the status of RECOV's merger negotiations with a private company for proceeds of more than $40,000 and avoided losses of approximately $14,000.
The Commission's Complaint alleges that Richard Verdiramo violated Section 5(a) of the Securities Act of 1933 (Securities Act), Sections 10(b), 13(b)(5), 13(d) and 16(a) of the Securities Exchange Act of 1934 (Exchange Act) and Exchange Act Rules 10b-5, 13b2-1, 13d-1, 13d-2 and 16a-3 and that he aided and abetted RECOV's violations of Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13. The complaint alleges that Meyer violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and that Vincent Verdiramo aided and abetted his son's violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. In addition, the complaint alleges that Vincent Verdiramo, Meyer, and Chen violated Section 5(a) of the Securities Act. The Commission's complaint seeks a permanent injunction, an accounting, disgorgement of ill-gotten gains with prejudgment interest, civil monetary penalties, and a penny stock bar against each defendant. The Complaint also seeks penalties pursuant to the Insider Trading Sanctions Act of 1984 against Meyer, and an officer and director bar as to Richard Verdiramo.
Meyer was the subject of a previous Commission action, which he settled in May 2002, by consenting to a permanent injunction against violations of the antifraud, anti-touting, and registration provisions of the federal securities laws, among other sanctions. (SEC v. Vertucci, Straughn, Petry, Baughman, Johnson, Meyer, and Hazlet Investors, Inc., Litigation Release No. 17519, May 15, 2002). [SEC v. Richard Verdiramo, Vincent L. Verdiramo, Edward Meyer, Jr., and Victoria Chen, Civil Action No. 10-CIV-1888 (S.D.N.Y.)] (LR-21447)
Permanent Injunction, Order of Disgorgement and Penalty Entered Against California Sales Agent in Connection With $45 Million Ponzi-Like Scheme
The Securities and Exchange Commission announced that on March 8, 2010, the Honorable Richard Seeborg, United States District Judge for the Northern District of California, entered a final judgment by default against defendant Darryl Lamonth Clark (Clark) for his participation in a fraudulent ponzi-like scheme perpetrated by Terchi Nelson Liao and two entities Liao controlled, AOB Commerce, Inc. and AOB Asia Fund I, LLC (collectively, AOB). Judge Seeborg issued an order enjoining Clark from future violations of the anti-fraud, as well as broker-dealer and securities registration provisions of federal securities laws. Judge Seeborg further ordered Clark to disgorge $779,849.09, plus prejudgment interest of $107,858.14, and assessed a $130,000 civil penalty against Clark.
The SEC's complaint, filed July 27, 2009, alleged that AOB and several related entities raised more than $45 million from hundreds of investors in several states from mid-2004 to July 2007, through the unregistered offering and sale of promissory notes that in many cases paid interest of up to 5.5% per month. The complaint alleged that, although AOB purported to be in the business of making loans to companies in Asia, investor proceeds were used primarily to pay principal and interest on the notes, pay commissions to sales agents, and make undisclosed loans to entities affiliated with AOB. The SEC brought the scheme to a halt in July 2007, with the filing of an emergency action and the appointment of a receiver. [SEC v. AOB Commerce, Inc., et al., Civil Action No. CV-07-4507 CAS (JCx) (C.D. Cal. filed July 12, 2007)].
The SEC's complaint alleged that Clark became an AOB sales agent in July 2004, and that he managed AOB's San Jose, California branch office. The complaint further alleged that Clark failed to conduct adequate due diligence, helped create a misleading brochure given to investors, and failed to register or become associated with a registered broker-dealer at the time that he participated in the sale of notes. As a result of his activities, the complaint alleged that Clark violated Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933, Sections 10(b) and 15(a) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder. For further information see LR-21153, (July 27, 2009), LR-20241 (Aug. 14, 2007), and LR-20196 (July 16, 2007). [SEC v. Darryl Lamonth Clark, Case No. Case No. C09-03423 RS United States District Court for the Northern District of California] (LR-21448)
INVESTMENT COMPANY ACT RELEASES
iShares Trust, et al.
An order has been issued on an application filed by iShares Trust, et al. The order amends a prior order that permits certain registered open-end management investment companies (Investing Management Companies) and unit investment trusts (Investing UITs, collectively with Investing Management Companies, Investing Funds) to acquire shares of other registered open-end management investment companies and unit investment trusts that operate as exchange-traded funds (ETFs) and are outside the same group of investment companies as the Investing Funds. The order modifies certain conditions of the prior order to permit: (a) Investing Management Companies that are subadvised by an investment adviser to such ETFs (or an affiliated person of the investment adviser) to acquire shares of the ETFs, and (b) Investing Funds to acquire shares of a series of a registered open-end management investment company that carries out its investment strategies by investing in a wholly owned subsidiary. (Rel. IC-29172 - March 10)
Immediate Effectiveness of Proposed Rule Changes
A proposed rule change (SR-CBOE-2010-025) filed by Chicago Board Options Exchange relating to permanent approval of the dividend, merger and short stock interest strategies fee cap 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 March 15. (Rel. 34-61674)
A proposed rule change filed by The NASDAQ Stock Market to amend Rule 3121 to reflect changes to corresponding FINRA rule and a clerical change to NASDAQ's rules (SR-NASDAQ-2010-033) 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 March 15. (Rel. 34-61681)
A proposed rule change filed by The NASDAQ Stock Market to provide an additional option to the DOTI routing strategy (SR-NASDAQ-2010-030) 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 March 15. (Rel. 34-61682)
Proposed Rule Change
The Financial Industry Regulatory Authority filed a proposed rule change, as modified by Amendment No. 1 (SR-FINRA-2009-054) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 to extend certain Regulation NMS protections to quoting and trading in the market for OTC Equity Securities. Publication is expected in the Federal Register during the week of March 15. (Rel. 34-61677)
Approval of Proposed Rule Change
The Commission approved a proposed rule change submitted by The Chicago Stock Exchange pursuant to Rule 19b-4 under the Securities Exchange Act of 1934 (SR-CHX-2009-18) to amend its co-location fees. Publication is expected in the Federal Register during the week of March 15. (Rel. 34-61680)
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