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COMMISSION ANNOUNCEMENTSSEC Charges Former Biotech Company Executive for False Claims About Down Syndrome TestThe Securities and Exchange Commission today charged a former executive at a San Diego-based biotechnology company for making false statements to investors about her company's prenatal test for Down syndrome. The SEC alleges that Elizabeth A. Dragon, the former Senior Vice President of Research and Development at Sequenom, Inc., lied during at least three public events where she made presentations to analysts and investors. She claimed that the test could predict whether a fetus had Down syndrome with almost 100 percent accuracy. However, the SEC alleges that Dragon knew the test was far less accurate than she claimed publicly. When Sequenom later announced that it was no longer relying on the data that Dragon presented and the test would not be launched as planned, the company's stock price plummeted by approximately 76 percent. "Elizabeth Dragon knew the truth about Sequenom's Down syndrome test, yet she told the public it was a near-perfect success," said Rosalind Tyson, Director of the SEC's Los Angeles Office. "Her actions misled investors with exaggerated information about a significant new product that never materialized." The SEC's complaint, filed in federal court in San Diego, alleges that Dragon presented materially misleading scientific data about Sequenom's prenatal screening test for Down syndrome. She falsely claimed that the test's highly accurate results were obtained on a "blinded" basis, meaning that scientists did not know whether the fetus had Down syndrome at the time they tested the maternal blood sample. However, the SEC alleges that Dragon provided her scientists with the known outcomes of the samples, which allowed them to manipulate the data in order to produce more accurate results. Dragon falsified the number of samples allegedly tested by Sequenom and she lied about how well the test worked, claiming that it produced unambiguous results. In reality, the test results were often difficult to interpret, which is why she needed to "unblind" the known outcomes to her scientists. Without admitting or denying the SEC's charges, Dragon has consented to a judgment permanently enjoining her from future violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and barring her from serving as an officer or director of a public company. The court will determine the amount of a financial penalty to be paid by Dragon at a later date. The SEC's investigation has been led by Diana Tani, Marc Blau, and Sara Kalin in the Los Angeles Regional Office. The SEC's investigation is continuing. The SEC thanks the U.S. Attorney's Office for the Southern District of California and the Federal Bureau of Investigation for their cooperation and assistance in this matter. For more information about this enforcement action, contact: Michele Wein Layne, Associate Regional Director, Los Angeles Regional Office,(323) 965-3850 Marc J. Blau, Assistant Regional Director, Los Angeles Regional Office, (323) 965-3975 (Press Rel. 2010-94) SEC Charges Miami Man in $40 Million Ponzi SchemeThe Securities and Exchange Commission today charged a Miami man for conducting a $40 million Ponzi scheme with funds primarily raised from investors in the local Hispanic community to purportedly support jewelry businesses and pawn shops. The SEC alleges that Luis Felipe Perez arranged "no-risk" loan agreements with investors and promised to pay them guaranteed annual returns of 18 percent to 120 percent through monthly interest payments. Perez falsely told investors that their investments were collateralized by diamonds, and even led some investors to believe they were beneficiaries on his life insurance policy without disclosing that the policy had lapsed. Rather than financing his jewelry businesses, the SEC alleges that Perez misused new investor funds to pay prior investors, and he stole at least $6 million for lavish personal spending on limousines, extravagant dinners, bodyguards, and political contributions that helped bolster his image in the local community. "Perez created an aura of success around him to lure old and new acquaintances into investing substantial sums of money," said John C. Mattimore, Associate Regional Director of the SEC's Miami Regional Office. "Behind the luster of diamonds and jewelry, Perez told outright lies and made promises he couldn't possibly keep." According to the SEC's complaint, filed in U.S. District Court for the Southern District of Florida, Perez began his scheme in 2006 when he began raising money from investors, many of them Hispanic, under the guise of investments in his purported jewelry businesses. Perez was the president and sole owner of Lucky Star Diamonds Inc. and Luis Felipe Jewelry Design Corp., neither of which ever had any employees. Both companies have now ceased operations. The SEC alleges that Perez boasted a successful track record of providing risk-free investments in order to befriend new investors through word-of-mouth from previous investors. Among the misrepresentations made by Perez when convincing investors to invest money with him:
The SEC alleges that Perez misused more than $6 million of investor money to fund his extravagant lifestyle. Among his lavish personal purchases with investor funds were a $3.2 million home, $1 million worth of jewelry, and exotic vacations that cost him $200,000 a year. Perez also spent investor money to travel by private jet, buy expensive artwork, and make $100,000 in political contributions. According to the SEC's complaint, Perez's scheme collapsed in June 2009 when he was no longer able to recruit new investors. The SEC's complaint charges Perez with violating the antifraud provisions of the federal securities laws. The SEC is seeking a permanent injunction, sworn accounting, disgorgement of ill-gotten gains with prejudgment interest, and a financial penalty against Perez. The SEC coordinated the filing of these civil charges with the U.S. Attorney's Office for the Southern District of Florida, which today announced criminal charges against Perez. The SEC appreciates the assistance of the criminal authorities in this matter, including the U.S. Attorney's Office, the U.S. Secret Service, the U.S. Immigration and Customs Enforcement, and the City of Miami Police Department. The SEC's case was investigated by Steven J. Meiner, Tonya E. Tullis, Eric R. Busto, and Chad Alan Earnst of the Miami Regional Office. The SEC's investigation is continuing. For more information about this enforcement action, contact: John Mattimore, Associate Regional Director, SEC's Miami Regional Office, (305) 982-6300 Edward D. McCutcheon, Assistant Regional Director, SEC's Miami Regional Office, (305) 982-6300 (Press Rel. 2010-95) ENFORCEMENT PROCEEDINGSSecurities and Exchange Commission Orders Hearing on Registration Suspension or Revocation Against Seven Public Companies for Failure to Make Required Periodic FilingsOn June 1, 2010, the Commission instituted public administrative proceedings to determine whether to revoke or suspend for a period not exceeding twelve months the registrations of each class of the securities of seven companies for failure to make required periodic filings with the Commission:
In this Order, the Division of Enforcement (Division) alleges that the seven issuers are delinquent in their required periodic filings with the Commission. In this proceeding, instituted pursuant to Exchange Act Section 12(j), a hearing will be scheduled before an Administrative Law Judge. At the hearing, the Administrative Law 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 Administrative Law Judge in the proceeding 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 this proceeding issue an initial decision not later than 120 days from the date of service of the order instituting proceedings. (Rel. 34-62201; File No. 3-13917) Securities and Exchange Commission Orders Hearing on Registration Revocation Against Seven Public Companies for Failure to Make Required Periodic FilingsOn June 1, 2010, the Commission instituted public administrative proceedings to determine whether to revoke or suspend for a period not exceeding twelve months the registrations of each class of the securities of seven companies for failure to make required periodic filings with the Commission:
In this Order, the Division of Enforcement (Division) alleges that the seven issuers are delinquent in their required periodic filings with the Commission. In this proceeding, instituted pursuant to Exchange Act Section 12(j), a hearing will be scheduled before an Administrative Law Judge. At the hearing, the Administrative Law 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 Administrative Law Judge in the proceeding 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 this proceeding issue an initial decision not later than 120 days from the date of service of the order instituting proceedings. (Rel. 34-62202; File No. 3-13918) In the Matter of American HealthChoice, Inc.An Administrative Law Judge has issued an Order Making Findings and Revoking Registrations by Default (Default Order) in American HealthChoice, Inc., Administrative Proceeding No. 3-13882. The Order Instituting Proceedings (OIP) alleged that Respondents each failed repeatedly to file required annual and quarterly reports while their securities were registered with the Securities and Exchange Commission. The Default Order finds the allegations in the OIP to be true and revokes the registrations of each class of registered securities of American HealthChoice, Inc., American Patriot Funding, Inc. (f/k/a Referral Holdings Corp.), American Quantum Cycles, Inc., Americare Health Scan, Inc. (f/k/a United Products International, Inc.), and Amnex, Inc., pursuant to Section 12(j) of the Securities Exchange Act of 1934. (Rel. 34-62203; File No. 3-13882) In the Matter of Stephen F. CliffordOn June 2, 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, Making Findings, and Imposing Remedial Sanctions (Order) against Respondent Stephen F. Clifford. The Order finds that Clifford, doing business under the name Clifford Financial Associates, acquired control over approximately $2.9 million in investors' assets, but Clifford never invested any of the funds as promised on behalf of investors and instead used most of the funds for his own benefit. The Order further finds that, on May 4, 2010, Clifford pled guilty to, among other things, willful violations of various provisions of the federal securities laws. Based on the above, the Order bars Clifford, pursuant to Section 15(b)(6) of the Exchange Act and Section 203(f) of the Advisers Act, from association with any broker, dealer, or investment adviser. Clifford consented to the issuance of the Order without admitting or denying the findings therein, except that he admitted the fact of his criminal conviction. (Rel. 34-62208; IA-3033; File No. 3-13919) SEC Charges Diebold and Former Financial Executives With Accounting FraudDiebold to Pay $25 Million Civil PenaltyFormer Diebold CEO to Reimburse Cash Bonuses, Stock and Options Pursuant to Section 304 of the Sarbanes-Oxley ActThe U.S. Securities and Exchange Commission today filed fraud and other charges against Diebold, Inc. (Diebold), Gregory Geswein, the company's former Chief Financial Officer, Kevin Krakora, the company's former Controller and later CFO, and Sandra Miller, the company's former Director of Corporate Accounting. Diebold is an Ohio corporation that manufactures and sells automated teller machines, bank security systems, and electronic voting machines. The company's stock is registered with the Commission and listed on the New York Stock Exchange. The Commission alleges that Diebold, Geswein, Krakora, and Miller engaged in fraudulent accounting practices to inflate the company's earnings to meet forecasts. As alleged in the complaints, from at least 2002 through 2007, these fraudulent practices included (i) improper use of "bill-and-hold" accounting; (ii) improper recognition of revenue on a lease agreement subject to an undisclosed buy-back agreement; (iii) manipulating reserves and accruals; (iv) improperly delaying and capitalizing expenses; and (v) improperly writing up the value of used inventory. The Commission alleges that Diebold filed at least 40 annual, quarterly, and other reports with the Commission, and issued dozens of press releases, that contained material misstatements and omissions concerning the company's financial performance. According to the complaints, Diebold's improper accounting practices misstated the company's reported pre-tax earnings by at least $127 million. As alleged in the complaints, to correct the recent misstatements, on Sept. 30, 2008, Diebold restated its financial statements for the years 2003 through 2006, and the first quarter of 2007, in its Form 10-K for 2007. The Commission charged Diebold with violating Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934 (Exchange Act), and Exchange Act Rules 10b-5, 12b-20, 13a-1, 13a-11, and 13a-13. Without admitting or denying the Commission's charges, Diebold has agreed to consent to a final judgment ordering the company to pay a $25 million civil penalty and permanently enjoining the company from future violations. In a contested action, the Commission charged Geswein, Krakora, and Miller with violating Section 17(a) of the Securities Act of 1933 (Securities Act), Sections 10(b) and 13(b)(5) of the of the Exchange Act, and Exchange Act Rules 10b 5 and 13b2-1, and aiding and abetting Diebold's violations of Sections 13(a), 13(b)(2)(A) and13(b)(2)(B) of the Exchange Act and Exchange Act Rules 12b-20, 13a-1, 13a-11, and 13a-13. In addition, the Commission charged Geswein and Krakora with violating Exchange Act Rules 13a-14 and 13b2-2 and Section 304 of the Sarbanes-Oxley Act of 2002. The Commission seeks against these defendants permanent injunctive relief, disgorgement of ill-gotten gains with prejudgment interest, civil monetary penalties, and, with respect to Geswein and Krakora, officer-and-director bars and reimbursement of bonuses and other compensation. In addition, the Commission filed an action against Walden O'Dell, the former Chief Executive Officer of Diebold, seeking reimbursement for bonuses and other incentive-based and equity-based compensation pursuant Section 304 of the Sarbanes-Oxley Act of 2002. The Commission's complaint alleges that Diebold was required to restate its annual financial statements for 2003, as well as other reporting periods, as a result of fraud and other misconduct. The complaint further alleges that O'Dell received from Diebold cash bonuses, shares of Diebold stock, and stock options during the 12-month period following the issuance of Diebold's 2003 financial statements, and that O'Dell failed to reimburse Diebold for that compensation. The complaint does not allege that O'Dell engaged in the fraud. Without admitting or denying the Commission's allegations, O'Dell has agreed to consent to a final judgment ordering him to reimburse $470,016 in cash bonuses, 30,000 shares of Diebold stock, and stock options for 85,000 shares of Diebold stock. The Commission acknowledges the assistance of the U.S. Attorney's Office for the Northern District of Ohio and the Federal Bureau of Investigation. [SEC v. Diebold, Inc., Civil Action No. 1:10-CV-00908 (D.D.C.); SEC v. Walden O'Dell, Civil Action No. 1:10-CV-00909 (D.D.C.); and SEC v. Gregory Geswein, Kevin Krakora, and Sandra Miller, Civil Action No. 5:10-CV-01235 (N.D. Ohio)] (LR-21543; AAE Rel. 3137) INVESTMENT COMPANY ACT RELEASESNotices of Deregistration under the Investment Company ActFor the month of May 2010, a notice has been issued giving interested persons until June 22, 2010, to request a hearing on any of the following applications for an order under Section 8(f) of the Investment Company Act declaring that the applicant has ceased to be an investment company:
(Rel. IC-29290 - May 28) AdvisorShares Investments, LLC and AdvisorShares TrustAn order has been issued on an application filed by AdvisorShares, LLC and AdvisorShares Trust. The order permits (a) series of certain open-end management investment companies to issue shares (Shares) redeemable in large aggregations only (Creation Units); (b) secondary market transactions in Shares to occur at negotiated market prices; (c) certain series to pay redemption proceeds, under certain circumstances, more than seven days from the tender of 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 Units; and (e) certain registered management investment companies and unit investment trusts outside of the same group of investment companies as the series to acquire Shares. (Rel. IC-29291 - May 28) SELF-REGULATORY ORGANIZATIONSImmediate Effectiveness of Proposed Rule ChangesA proposed rule change filed by New York Stock Exchange (SR-NYSE-2010-37) to add certain violations of its communications and give-up policies to its MRVP 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 May 31. (Rel. 34-62167) A proposed rule change filed by NYSE Amex (SR-NYSEAmex-2010-44) to add certain violations of its communications and give-up policies to its MRVP 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 May 31. (Rel. 34-62168) A proposed rule change filed by NYSE Amex (SR-NYSEAmex-2010-43) to make violations of certain reporting requirements punishable under its MRVP 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 May 31. (Rel. 34-62169) A proposed rule change (SR-BATS-2010-013) filed by BATS Exchange to amend BATS Rule 19.5, entitled "Minimum Participation Requirement for Opening Trading of Option Series" 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 May 31. (Rel. 34-62177) A proposed rule change filed by NASDAQ OMX PHLX relating to reformatting the fee schedule (SR-Phlx-2010-77) 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 May 31. (Rel. 34-62179) A proposed rule change filed by the Chicago Board Options Exchange to extend the rule permitting CBOE members to trade option contracts priced below $1.00 in open outcry (SR-CBOE-2010-052) 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 May 31. (Rel. 34-62192) Approval of Proposed Rule ChangesThe Commission approved a proposed rule change (SR-NYSE-2010-30) submitted under Rule 19b-4 of the Securities Exchange Act of 1934 by the New York Stock Exchange to establish the NYSE BBO Service. Publication is expected in the Federal Register during the week of May 31. (Rel. 34-62181) The Commission approved a proposed rule change (SR-NYSEAmex-2010-35) submitted under Rule 19b-4 of the Securities Exchange Act of 1934 by the NYSE Amex to establish NYSE Amex Trades and NYSE Amex BBO and related fees. Publication is expected in the Federal Register during the week of May 31. (Rel. 34-62187) The Commission approved a proposed rule change (SR-NYSEArca-2010-23) submitted under Rule 19b-4 of the Securities Exchange Act of 1934 by the NYSE Arca to modify the fees for NYSE Arca Trades and to establish the NYSE Arca BBO service and related fees. Publication is expected in the Federal Register during the week of May 31. (Rel. 34-62188) The Commission approved a proposed rule change, as modified by Amendment No. 1 thereto, submitted by the Chicago Board Options Exchange (SR-CBOE-2010-021) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 relating to correlated instrument delta hedge exemption. Publication is expected in the Federal Register during the week of May 31. (Rel. 34-62190) The Commission approved a proposed rule change (SR-Phlx-2010-48) filed by the NASDAQ OMX PHLX under Rule 19b-4 of the Securities Exchange Act of 1934 relating to market data fees. Publication is expected in the Federal Register during the week of May 31. (Rel. 34-62194)Proposed Rule ChangesThe Commission issued notice of filing of a proposed rule change (SR-CBOE-2010-043) submitted by Chicago Board Options Exchange pursuant to Rule 19b-4 under the Securities Exchange Act of 1934 to enable the listing and trading of options on the Sprott Physical Gold Trust. Publication is expected in the Federal Register during the week of May 31. (Rel. 34-62193) The Financial Industry Regulatory Authority filed a proposed rule change (SR-FINRA-2010-026) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 and Rule 19b-4 thereunder that proposes to adopt NASD Rule 2720 (Public Offerings of Securities With Conflicts of Interest) without material change as FINRA Rule 5121 in the Consolidated FINRA Rulebook. Publication is expected in the Federal Register during the week of May 31. Rel. 34-62199) SECURITIES ACT REGISTRATIONSRECENT 8K FILINGS
http://www.sec.gov/news/digest/2010/dig060210.htm
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