Securities and Exchange Commission Suspends Trading in the Securities of Ten Issuers for Failure to Make Required Periodic Filings
The U.S. Securities and Exchange Commission announced the temporary suspension of trading in the securities of the following issuers, commencing at 9:30 a.m. EDT on March 18, 2010, and terminating at 11:59 p.m. EDT on March 31, 2010.
The Commission temporarily suspended trading in the securities of these ten issuers due to a lack of current and accurate information about the companies because they have not filed periodic reports with the Commission in over two years. This order was entered pursuant to Section 12(k) of the Securities Exchange Act of 1934 (Exchange Act).
The Commission cautions brokers, dealers, shareholders and prospective purchasers that they should carefully consider the foregoing information along with all other currently available information and any information subsequently issued by these companies.
Brokers and dealers should be alert to the fact that, pursuant to Exchange Act Rule 15c2-11, at the termination of the trading suspensions, no quotation may be entered relating to the securities of the subject companies unless and until the broker or dealer has strictly complied with all of the provisions of the rule. If any broker or dealer is uncertain as to what is required by the rule, it should refrain from entering quotations relating to the securities of these companies that have been subject to a trading suspension until such time as it has familiarized itself with the rule and is certain that all of its provisions have been met. Any broker or dealer with questions regarding the rule should contact the staff of the Securities and Exchange Commission in Washington, DC at (202) 551-5720. If any broker or dealer enters any quotation which is in violation of the rule, the Commission will consider the need for prompt enforcement action.
If any broker, dealer or other person has any information which may relate to this matter, they should immediately communicate it to the Delinquent Filings Branch of the Division of Enforcement at (202) 551-5466, or by e-mail at DelinquentFilings@sec.gov. (Rel. 34-61728)
SEC Charges S.C.-Based Lawyer in Scheme Promising Investors Returns as High as 4,900 Percent
The Securities and Exchange Commission today charged a South Carolina-based attorney and a cohort with securities fraud for bilking investors in a high-yield investment scheme that promised rates of return as high as 4,900 percent in just two months.
The SEC alleges that M. Mark McAdams of Myrtle Beach, S.C., and R. Dane Freeman of Flat Rock, N.C., enticed investors by telling them they would generate the high returns through their firm - Global Holdings LLC - by buying bonds or notes directly from issuers at a discount and then quickly reselling them for a profit on international trading platforms.
According to the SEC's complaint, McAdams used the letterhead and e-mail system of the law firm where he worked to communicate with investors and conduct Global Holdings business, without the firm's knowledge. Global Holdings never purchased or sold bonds, and investors never received the profits promised. Some investor money was diverted to pay Freeman's family and friends as well as a personal debt he owed.
"McAdams and Freeman promised astronomical returns that they could not possibly deliver. Such statements, especially when they come from a practicing attorney, are of particular concern to the Division of Enforcement," said Rhea Kemble Dignam, Director of the SEC's Atlanta Regional Office.
The SEC's complaint, filed in federal district court in Columbia, S.C., alleges that McAdams and Freeman raised more than $3.5 million from approximately 35 investors through joint venture agreements in which they represented that Global Holdings would use investor funds to buy and sell Standard and Poor's AAA or AA rated bonds or Medium Term Notes and trade them overseas to earn profits. Some of the joint venture agreements represented that investors who invested $20,000 would receive $1 million after 60 days, a return of 4,900 percent. Global Holdings never made these payments to investors, yet McAdams and Freeman continued to raise investments for the firm from new investors.
The SEC alleges that McAdams and Freeman misrepresented the success of their purported trading program to investors. According to the SEC's complaint, McAdams misled at least one potential investor by falsely claiming that Global Holdings had already participated in hundreds of transactions that produced hundreds of millions of dollars for dozens of investors. Freeman told another potential investor that members of Global Holdings had invested $2 million of their own funds, made at least $200 million, and distributed $50 million to themselves while reinvesting the rest. To substantiate his false claim that he received a substantial distribution himself, Freeman sent the potential investor a document showing that Freeman had $11 million in a trust account that represented his share of the proceeds. In reality, the trust account was established by Freeman's parents, did not contain any proceeds from the Global Holdings program, and had an actual of value of $1.34 million instead of the $11 million that Freeman purported to show in the document.
The SEC's complaint alleges that McAdams and Freeman have violated the antifraud provisions of the federal securities laws, Sections 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 Commission's complaint seeks (i) a permanent injunction against future violations; (ii) disgorgement of ill-gotten gains plus prejudgment interest; and (iii) imposition of financial penalties.
The Commission thanks the South Carolina Securities Division for its assistance in this matter.
For more information about this enforcement action, contact:
William P. Hicks, Associate Regional Director for Enforcement, SEC's Atlanta Regional Office, 404-842-7675
(Press Rel. 2010-41)
SEC Warns Firms on Muni Pay-to-Play Rules
The Securities and Exchange Commission today issued a report warning firms that municipal securities rules prohibiting pay-to-play apply to affiliated financial professionals, not just a firm's employees.
The pay-to-play rule, MSRB Rule G-37, generally prohibits firms from underwriting municipal bonds for an issuer for two years after a municipal finance professional (MFP) involved with that firm makes a campaign contribution to an elected official of that municipality.
In the Report of Investigation, the Commission makes clear that an executive who supervises the activities of a broker, dealer, or municipal securities dealer is not exempt from the MSRB's pay-to-play rule just because he or she may be outside the firm's corporate governance structure. As such, an executive may be deemed an MFP if he or she is not part of a broker-dealer, but oversees the broker-dealer from the vantage of the holding company.
"Firms and their employees must adhere strictly to municipal securities pay-to-play rules," said Robert Khuzami, Director of the SEC's Division of Enforcement. "Global business heads cannot use titles and corporate organizational charts to avoid these responsibilities."
When the Commission approved the rule in 1994, it indicated that banks and bank holding companies affiliated with brokers, dealers and municipal securities dealers were excluded from the rule. Since then, the Commission has not directly addressed whether directors, officers or employees of such banks and bank holding companies are MFPs if they supervise the public finance activities of brokers, dealers and municipal securities dealers or serve on executive committees that engage in such supervision.
The Commission's Report of Investigation stems from an Enforcement Division inquiry into whether JP Morgan Securities Inc. (JPMSI) violated the MSRB Rule. According to the Report, JPMSI underwrote municipal bonds issued by the state of California within two years after a then-Vice Chairman of JPMSI's parent bank holding company (JP Morgan Chase) gave a $1,000 contribution to a California elected official.
Under Section 21(a) of the Securities Exchange Act, the Commission may investigate violations of the federal securities laws and at its discretion "publish information concerning any such violations." JPMSI consented to the issuance of the Report without admitting or denying any of the statements or conclusions. (Press Rel. 2010-42)
Closed Meeting - Thursday, March 25, 2010 - 2:00 p.m.
The subject matter of the Closed Meeting scheduled for Thursday, March 25, will be: institution and settlement of injunctive actions; institution and settlement of administrative proceedings; adjudicatory matters; 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.
In the Matter of Charles J. Marquardt
The Securities and Exchange Commission announced that, based on the entry of an injunction on March 11, 2010 in a civil injunctive action previously filed by the Commission, it issued an Order in the Matter of Charles J. Marquardt barring him from association with any investment adviser, broker or dealer with a right to reapply after two years. The Order finds that Marquardt, age 42, of Cambridge, Massachusetts, is a former a senior vice president of Evergreen Investment Management Company, LLC (Evergreen), the registered investment adviser for the Evergreen family of mutual funds, and a former registered representative of Evergreen Investment Services, Inc., Evergreen's affiliated broker-dealer. The Order finds that the Commission's complaint against Marquardt alleged that, on or about June 12, 2008, Marquardt redeemed all of the shares he owned in the Evergreen Ultra Short Opportunities Fund (Ultra Fund) and caused a family member to do the same while Marquardt was in possession of material, nonpublic information about the Ultra Fund that he had learned through his employment with Evergreen.
Marquardt consented to the issuance of the Commission's Order without admitting or denying its findings except as to the entry of the final judgment.
For further information, see Lit. Rel. No. 21383 (Jan. 20, 2010) and Securities Act Release No. 60059 (June 8, 2009). (Rels. 34-61723; IA-3003; File No. 3-13819)
Commission Orders Hearings on Registration Suspension or Revocation Against Ten Companies for Failure to Make Required Periodic Filings
In conjunction with today's trading suspension, the Commission also instituted two separate public administrative proceedings to determine whether to revoke or suspend for a period not exceeding twelve months the registration of each class of the securities of ten companies for failure to make required periodic filings with the Commission:
In the Matter of Talisman Enterprises, Inc., et al., Administrative Proceeding File No. 3-13822
In the Matter of Tangent Solutions, Inc., et al., Administrative Proceeding File No. 3-13823
In each Order, the Division of Enforcement (Division) alleges that the respective Respondents are delinquent in their required periodic filings with the Commission.
In each of these proceedings, instituted pursuant to Exchange Act Section 12(j), a hearing will be scheduled before an Administrative Law Judge. At the hearing, the judge will hear evidence from the Division and the Respondents to determine whether the allegations of the Division contained in the Order, which the Division alleges constitute failures to comply with Exchange Act Section 13(a) and Rules 13a-1 and 13a-13 or 13a-16 thereunder, are true. The judge in the proceedings will then determine whether the registrations pursuant to Exchange Act Section 12 of each class of the securities of these Respondents should be revoked or suspended for a period not exceeding twelve months. The Commission ordered that the Administrative Law Judge in each proceeding issue an initial decision not later than 120 days from the date of service of the order instituting proceedings. (In the Matter of Talisman Enterprises, Inc., et al., Rel. 34-61729; File No. 3-13822); (In the Matter of Tangent Solutions, Inc., et al., Rel. 34-61730; File No. 3-13823)
SEC Files Settled Foreign Corrupt Practices Act Charges Against Innospec, Inc. for Engaging in Bribery in Iraq and Indonesia With Total Disgorgement and Criminal Fines of $40.2 Million
The Securities and Exchange Commission filed a settled enforcement action on March 18, 2010, in the U.S. District Court for the District of Columbia charging Innospec, Inc. (Innospec), a specialty chemical company incorporated in Delaware with principal offices in the United States and the United Kingdom, with violations of the anti-bribery, books and records, and internal controls provisions of the Foreign Corrupt Practices Act (FCPA). Innospec has offered to pay $40.2 million as part of a global settlement with the Commission, the Department of Justice, Fraud Section (DOJ), the United Kingdom's Serious Fraud Office (SFO), and the U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC). This case is the first corruption-related settlement coordinated between the Commission, DOJ, and the SFO.
The SEC's complaint alleges that:
From 2000 to 2007, Innospec routinely paid bribes to sell Tetra Ethyl Lead (TEL), a fuel additive that boosts the octane value of gasoline, to state owned refineries and oil companies in Iraq and Indonesia. TEL was a significant source of revenue for Innospec; however, TEL sales were declining due to the passage of clean air legislation in the U.S. and abroad. Innospec also paid kickbacks to Iraq to obtain contracts under the United Nations Oil for Food Program (Program). Innospec's former management did nothing to stop the bribery, and in fact authorized and encouraged it. In addition, Innospec's internal controls failed to detect the illicit conduct, which continued for nearly a decade. In all, Innospec made illicit payments of approximately $6,347,588 and promised an additional $2,870,377 in illicit payments to Iraqi ministries, Iraqi government officials, and Indonesian government officials in exchange for contracts worth approximately $176,717,341 in revenues and profits of $60,071,613.
From 2000 through 2003, Innospec obtained five Program contracts for the sale of TEL to the Iraqi Ministry of Oil and its component oil refineries (MoO) and paid kickbacks equaling 10% of the contract value on three of the contracts and offered kickbacks on the remaining two contracts. Innospec increased its agent's commission as a means to funnel the payments to Iraq. Innospec artificially inflated its prices in the Program contracts and did not notify the UN of the kickback scheme. When the Program ended shortly before Innospec paid the promised kickbacks on two of the contracts, Innospec kept the promised payments as part of its profit.
After the Program was terminated in late 2003, Innospec continued to use its agent in Iraq to pay bribes to Iraqi officials to secure additional TEL sales. From at least 2004 through 2007, Innospec made payments totaling approximately $1,610,327 and promised an additional $884,480 to MoO officials so as to garner good will with Iraqi authorities, obtain additional orders under a Long Term Purchase Agreement that was executed in October 2004 (2004 LTPA) and ensure the execution of a second LTPA in January 2008 (2008 LTPA). In an October 2005 e-mail to Innospec, Innospec's agent informed a Business Director and an Executive that prior to opening a letter of credit for a shipment of TEL, Iraqi officials were demanding a 2% kickback. The e-mail further stated that: "We are sharing most of our profits with Iraqi officials. Otherwise, our business will stop and we will lose the market. We have to change our strategy and do more compensation to get the rewards." The Business Director authorized the over $195,000 bribe, and in an e-mail discussing the wording of the invoice, the Business Director stated that "the fewer words the better!"
Innospec also paid lavish travel and entertainment expenses for MoO officials, including paying for a seven day honeymoon, supplying mobile phone cards and cameras, and paying thousands in cash for "pocket money" to officials. Innospec also paid bribes to ensure the failure of a 2006 field test of MMT, a fuel product manufactured by a competitor of Innospec. Finally, Innospec promised additional bribes of approximately $850,000 in connection with the 2008 LTPA, which was thwarted due to the U.S. governments' investigation of the Iraq bribery.
Innospec also had several schemes to pay bribes to Indonesian government officials from at least 2000 through 2005 to win contracts with state owned oil and gas companies. Approximately $2,883,507 in bribes was funneled through an Indonesian agent. One scheme involved bribes paid annually to a senior official at BP Migas; another involved "special commissions" paid to a Swiss account; and one involved a "one off payment" of $300,000. Innospec paid bribes to officials to support efforts to maintain TEL sales in Indonesia at a time when Indonesia was planning to go unleaded. In one instance, an official indicated that he would assist Innospec in obtaining TEL sales but that he wanted more than just "cents" in return.
Innospec violated Section 30A of the Securities Exchange Act of 1934 by engaging in bribery of government officials in Iraq during the post-Oil for Food period and government officials in Indonesia. Innospec violated Section 13(b)(2)(B) of the Exchange Act by failing to maintain internal controls to detect and prevent bribery of officials in Iraq and Indonesia as well as the illicit Oil for Food Program kickbacks. Finally, Innospec violated Section 13(b)(2)(A) of the Exchange Act by improperly recording all of the illicit payments in its books.
Without admitting or denying the Commission's allegations, Innospec has consented to the entry of a court order permanently enjoining it from future violations of Sections 30A, 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act; ordering it to pay $60,071,613 in disgorgement, provided that the Commission waive all but $11,200,000 of disgorgement and permitting payment in four installments based upon Innospec's sworn Statement of Financial Condition; and ordering it to comply with certain undertakings regarding its FCPA compliance program, including an independent monitor for a period of three years. Based on its financial condition, Innospec offered to pay a reduced criminal fine of $14.1 million to the DOJ and a criminal and civil fine of $12.7 million to the SFO. Innospec will pay $2.2 million to OFAC for unrelated conduct.
The SEC acknowledges assistance in its ongoing investigation from the U.S. Department of Justice, Fraud Section, the Federal Bureau of Investigation, the United Kingdom Serious Fraud Office, and the United States Department of the Treasury, Office of Foreign Assets Control. [SEC v. Innospec, Inc., Civil Action No.1:10-cv-00448 (D.D.C.)] (LR-21454)
INVESTMENT COMPANY ACT RELEASES
A notice has been issued giving interested persons until April 8, 2010, to request a hearing on an application filed by SeaCo Ltd. for an order under Section 3(b)(2) of the Investment Company Act declaring it to be primarily engaged in a business other than that of investing, reinvesting, owning, holding or trading in securities. (Rel. IC-29176 - March 17)
Accelerated Approval of Proposed Rule Change
The Commission issued notice of Amendment No. 1 and approved on an accelerated basis proposed rule change, as modified by Amendment No. 1 thereto (SR-FINRA-2009-041), filed by the Financial Industry Regulatory Authority, to adopt FINRA Rule 3160 in the Consolidated FINRA Rulebook. Publication is expected in the Federal Register during the week of March 15. (Rel. 34-61706)
Approval of Proposed Rule Change
The Commission approved a proposed rule change (SR-ISE-2010-02) submitted by the International Securities Exchange relating to the cut-off time for Contrary Exercise Advice submissions. Publication is expected in the Federal Register during the week of March 15. (Rel. 34-61710)
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