Securities and Exchange Commission Suspends Trading in the Securities of Nine 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 July 14, 2010, and terminating at 11:59 p.m. EDT on July 27, 2010.
The Commission temporarily suspended trading in the securities of these nine 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. 34-62493)
Enforcement Chief Counsel Joan McKown to Leave SEC
The Securities and Exchange Commission announced today that Joan McKown, the longtime Chief Counsel of the Division of Enforcement, will depart the agency to become a partner in the Washington office of the law firm Jones Day.
During Ms. McKown's 24-year career at the SEC, she has played a key role in establishing various enforcement policies at the agency and in reviewing proposed enforcement actions before they are recommended to the Commission for approval.
"The Enforcement Division has greatly benefited from Joan's considerable abilities as a lawyer and from her knowledge of the Commission's role as chief enforcer of the nation's securities laws," said Robert Khuzami, Director of the SEC's Division of Enforcement. "Her expertise in the law and her historical perspective on enforcement matters are qualities we will miss at the SEC. We wish her well."
Ms. McKown said, "It has been an honor to serve the Commission and support its mission to protect investors. I have been privileged to work for two decades with a staff that has been consistently intelligent and dedicated, and is always willing to creatively meet new challenges."
Ms. McKown joined the SEC in 1986 as a Staff Attorney in the Office of the General Counsel. She moved to the Enforcement Division the following year and served in multiple positions, including Branch Chief and Assistant Director, before being named Chief Counsel in 1993.
As Chief Counsel, Ms. McKown has counseled SEC Commissioners about enforcement policies and practices, spearheaded the implementation of enforcement-related portions of the Sarbanes-Oxley Act of 2002, and been involved in settlement negotiations of hundreds of SEC enforcement cases.
In 2004, Ms. McKown received the SEC's Distinguished Service Award, which is the highest honor the agency bestows on an individual. In 1994, she received the SEC's Stanley Sporkin Award, which recognizes SEC staff who have made exceptionally tenacious and insightful contributions to the enforcement of the federal securities laws.
Prior to her SEC service, Ms. McKown was an attorney at the U.S. Small Business Administration from 1983 to 1986. She earned her BA from Vanderbilt University in 1980, and her JD with Honors from Drake University Law School in 1983. She clerked for Senior Judge J. Smith Henley of the Eighth Circuit Court of Appeals for three years. (Press Rel. 2010-121)
SEC Votes to Seek Public Comment on U.S. Proxy System
The Securities and Exchange Commission today voted unanimously to issue a concept release seeking public comment on the U.S. proxy system and asking whether rule revisions should be considered to promote greater efficiency and transparency.
The U.S. proxy system governs the way in which investors vote their shares in a public company regardless of whether they attend shareholder meetings.
"The proxy is often the principal means for shareholders and public companies to communicate with one another, and for shareholders to weigh in on issues of importance to the corporation," said SEC Chairman Mary L. Schapiro. "To result in effective governance, the transmission of this communication between investors and public companies must be timely, accurate, unbiased, and fair."
It has been nearly 30 years since the Commission last conducted a comprehensive review of the proxy voting infrastructure. With significant changes since then in shareholder demographics, technology, and other areas, the Commission's review of the U.S. proxy system will examine emerging issues that either did not exist or were not considered significant three decades ago.
The SEC's concept release focuses on the accuracy and transparency of the voting process, the manner in which shareholders and corporations communicate, and the relationship between voting power and economic interest.
There will be a 90-day public comment period for the concept release after it is published in the Federal Register.
Last year, Chairman Schapiro directed the SEC staff to undertake a comprehensive review of the U.S. proxy system. More than 600 billion shares are voted at more than 13,000 shareholder meetings every year.
In the three decades since the Commission last conducted a comprehensive review, there have been dramatic changes affecting the operation of that system. Those include technological innovations, changes in the nature of stock ownership, consolidation of proxy distribution service providers, growth in other types of proxy service providers, and new financial products.
As part of its review, the Commission issued the concept release seeking public comment on concerns raised by investors and industry participants relating to the accuracy, reliability, transparency, accountability, and integrity of the U.S. proxy system.
What is the U.S. proxy system?
The U.S. proxy system governs how investors vote their shares on matters presented to shareholders at shareholder meetings. Most investors vote their shares by proxy - that is, they give authority to someone else to vote their shares according to their instructions. This means that investors can vote their shares without having to attend shareholder meetings.
Many investors are "record owners" - that is, their names are listed in the company's shareholder records - and they can vote their shares directly by granting a proxy. The vast majority of investors in U.S. companies, however, hold their shares in "street name" - that is, in customer accounts with a securities intermediary, which is usually a broker or bank. To vote their shares, these investors, who are also known as "beneficial owners," typically give voting instructions to their securities intermediary or to a third party (known as a "proxy service provider") retained by the securities intermediary to receive voting instructions on its behalf.
In turn, the securities intermediary will reflect the beneficial owners' voting instructions when executing its proxy for shares held in its customer accounts. Ultimately, proxies from record owners and proxies from securities intermediaries (reflecting voting instructions from beneficial owners) are delivered to a vote tabulator to determine the outcome of the vote.
What issues does the concept release address?
The concept release, which requests comment on matters relating to the U.S. proxy system, is organized under three general areas:
The specific matters covered in those areas are:
Over-voting and under-voting of shares: At times, a broker-dealer - or other securities intermediary - may cast more votes, or fewer votes, than the number of shares that the intermediary actually holds. This imbalance results from the way securities transactions are cleared and settled in the U.S. markets.
Some securities intermediaries, primarily broker-dealers, have developed methods to reconcile their records and allocate votes to their customers in order to avoid "over-voting." One of those methods, however, may result in "under-voting," which occurs when investors who are allocated the ability to vote fail to do so, and other investors who do vote may be allocated a number of votes fewer than the number of shares they hold.
The concept release seeks comment on whether over-voting or under-voting is a problem, and if so, whether the method used by the broker-dealer to allocate votes should be disclosed, and whether the Commission should require the use of a particular method.
Vote confirmation: The concept release explores the possibility of requiring vote tabulators, securities intermediaries, and proxy service providers to provide each other with access to vote data so investors and issuers can confirm that votes have been received and tallied according to investors' voting instructions.
Proxy voting by institutional securities lenders: Institutional shareholders often lend their securities, and shares on loan generally cannot be voted by the lender unless the shares are recalled. Without sufficient advance notice of the matters to be voted on, lenders may not be able to recall shares in time to vote on matters of interest. The concept release examines whether shareholders would be helped by requiring the agenda items at shareholder meetings to be identified earlier, so that lenders can make a decision to re-call their shares and vote on issues important to them. In addition, the concept release explores whether mutual funds and closed-end funds should be required to disclose the number of shares that a fund votes at a particular meeting, in addition to how that fund votes.
Proxy distribution fees: Stock exchange rules, last revised in 2002, establish the maximum fees that a member broker-dealer may charge an issuer as "reasonable reimbursement" for forwarding proxy materials. In response to concerns about whether this fee structure continues to constitute reasonable reimbursement, the concept release discusses several potential actions, including having the stock exchanges revise the fee schedule or eliminate it in favor of allowing market forces to determine appropriate fees.
Issuers' ability to communicate with beneficial owners of securities: Some issuers have expressed concerns that they are limited in their ability to communicate directly with their shareholders. These issuers cite the "street name" system of ownership, as well as rules allowing beneficial owners to object to having their identities disclosed to issuers, as reasons for this concern. Among other things, the concept release seeks comments on whether to preserve, eliminate, limit, or discourage the use of objecting beneficial owner status.
Potential means to facilitate retail investor voting participation: The concept release presents several ideas that could potentially improve retail investor voting participation, including:
Data-tagging proxy-related materials: At the suggestion of the SEC's Investor Advisory Committee, the concept release seeks comment on whether data-tagging proxy-related data, such as information relating to executive compensation and director qualifications, might enhance a shareholder's ability to analyze issuer disclosures to make informed voting decisions.
Role of proxy advisory firms: Some companies and investors have raised concerns that proxy advisory firms may be subject to conflicts of interest or may fail to conduct adequate research and base recommendations on erroneous or incomplete facts. As a result, the concept release seeks comment on improving disclosure of potential conflicts of interest, enhancing regulatory oversight over the formation of voting recommendations, and requiring eventual public disclosure by proxy advisory firms of their voting recommendations in Commission filings.
Dual record dates: Companies set a date - known as the "record date" - on which persons who are shareholders on that date are entitled to receive notice of a meeting and to vote at the meeting. If a shareholder sells after the record date, that person (who no longer holds the shares) still has the right to vote. This can mean that holders without an economic stake in the matter can influence the outcome of a vote.
Recent changes to state law, however, now allow for "dual record dates" - one for determining who is entitled to receive notice of the meeting and a later one for determining who can vote at the meeting. The concept release requests comment on whether the Commission's rules should be revised to accommodate dual record dates.
"Empty voting": The concept release requests comment on whether "empty voting" and related activities are being used to inappropriately influence corporate voting results. "Empty voting" occurs when a shareholder's voting rights substantially exceed its economic interest in the company - that is, its voting rights are "decoupled" from its economic interest. For example, if a holder of shares buys a put option to sell those shares, the holder retains voting rights on all of those shares, even though it has hedged away at least some of its economic interest. Empty voting can also occur if a shareholder sells its shares after the record date of a shareholder meeting, but before the meeting. In that instance, the shareholder retains the right to vote those shares, even though it no longer has an economic interest in those shares. The release requests comment on, for instance, whether the Commission should consider requiring disclosure of decoupling activities as a possible regulatory response.
With respect to each of these topics, the concept release describes the concerns that have been expressed by market participants, presents several possible regulatory responses to such concerns, and presents specific questions for public comment.
What are the next steps?
There is a 90-day public comment period for this concept release. (Press Rel. 2010-122)
In the Matter of Gary Maddux
On July 13, 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 Gary Maddux (Respondent). The Order finds that on June 23, 2010, a judgment was entered against Respondent in SEC v. Thomas A. Labry, et al. (Civil Action Number SACV 10-0018 JVS (VBKx)), permanently enjoining him from future violations of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 and Sections 10(b) and 15(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.
The Order further finds that Maddux is not registered with the Commission as a broker-dealer and is not associated with a broker-dealer that is registered with the Commission. In addition, the Order finds that the Commission's complaint in SEC v. Thomas A. Labry, et al. alleged that Maddux offered and sold units of working interests in oil and gas wells located in Oklahoma for Cherokee Gas Systems, Inc. The Commission's complaint also alleged that during 2009, Maddux and other sales representatives for Cherokee raised approximately $1.65 million from individuals who purchased the units. The Commission's complaint further alleged that of the $1.65 million, Maddux directly received at least $221,195. When offering and selling the units, Maddux used the alias "Geoff Tate." In addition, the complaint alleged that Maddux falsely told investors various time frames by which they would start receiving monthly checks from Cherokee, even though he knew, or was reckless in not knowing, that no Cherokee investor had ever received a monthly check. The complaint also alleged that Maddux failed to disclose to investors that sales representatives, including himself, received commissions totaling approximately 30% of the investment.
Based on the above, the Order bars Gary Maddux from association with any broker or dealer. Gary Maddux consented to the issuance of the Order without admitting or denying the findings in the Order, except he admitted the entry of the injunction. (Rel. 34-62487; File No. 3-13965)
Delinquent Filer's Stock Registration Revoked
The registration of the registered securities of Micro Laboratories, Inc., has been revoked. The company had repeatedly failed to file required annual and quarterly reports with the Securities and Exchange Commission. Thus, it violated a crucial provision of the federal securities laws that requires public corporations to publicly disclose current, accurate financial information so that investors may make informed decisions. (Rel. 34-62492; File No. 3-13937)
Commission Orders Hearings on Registration Suspension or Revocation Against Nine Companies for Failure to Make Required Periodic Filings
In conjunction with today's trading suspension, the Commission also instituted a separate public administrative proceeding to determine whether to revoke or suspend for a period not exceeding twelve months the registration of each class of the securities of eight companies for failure to make required periodic filings with the Commission:
In the Order, the Division of Enforcement (Division) alleges that the Respondents 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 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 thereunder, are true. The 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 the proceeding issue an initial decision not later than 120 days from the date of service of the order instituting proceedings. (Rel. 34-62494; File No. 3-13966)
In the Matter of the Colonial BancGroup, Inc.
On July 14, 2010, the Commission issued an Order Instituting Administrative Proceedings And Notice of Hearing Pursuant to Section 12(j) of the Securities Exchange Act of 1934 (Order) against The Colonial BancGroup, Inc. (Colonial BancGroup), to determine whether to suspend for a period not exceeding twelve months or revoke the registration of each class of securities of Colonial BancGroup registered pursuant to Section 12 of the Securities Exchange Act of 1934 (Exchange Act). The Division of Enforcement alleges that Colonial BancGroup has failed to comply with Section 13(a) of the Exchange Act and Rules 13a-1, 13a-11 and 13a-13 thereunder, while its common stock was registered with the Commission in that: (1) it has not filed an Annual Report on Form 10-K or 10-KSB since March 2, 2009; (2) it has been aware since on or about August 2009 that its previously issued financial statements, covering one or more years or interim periods for which Colonial BancGroup is required to provide financial statements under Regulation S-X, should no longer be relied upon because of an error in such financial statements but has not filed an Item 4.02 Form 8-K disclosing a non-reliance on previously issued financial statements; and (3) it has not filed quarterly reports on either Form 10-Q or Form 10-QSB since May 8, 2009. A hearing will be scheduled before an Administrative Law Judge to determine whether the allegations of the Division contained in the Order are true, and to provide Colonial BancGroup an opportunity to respond to these allegations. As directed by the Commission, the Administrative Law Judge shall issue an initial decision in this matter not later than 120 days from the date of service of the Order Instituting Proceedings. (Rel. 34-62497; File No. 3-13967)
Proposed Rule Changes
Fixed Income Clearing Corporation filed a proposed rule change (SR-FICC-2010-02) under Section 19(b)(1) of the Exchange Act that would amend the Rules of the Government Securities Division and the Mortgage-Backed Securities Division to change the classification of U.S. branches or agencies of non-U.S. banks from foreign to U.S. members. Publication is expected in the Federal Register during the week of July 12. (Rel. 34-62478)
The Commission issued a notice of filing of a proposed rule change by the Municipal Securities Rulemaking Board pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934, relating to the Continuing Disclosure Service of the MSRB Electronic Municipal Market Access (EMMA) System (SR-MSRB-2010-05). Publication is expected in the Federal Register during the week of July 12. (Rel. 34-62489)
The Commission noticed a proposed rule change (SR-NASDAQ-2010-078), as modified by Amendment No. 1 thereto, submitted by The NASDAQ Stock Market pursuant to Rule 19b-4 under the Securities Exchange Act of 1934 to modify Rule 7019 governing market data distribution fees. Publication is expected in the Federal Register during the week of July 12. (Rel. 34-62490)
Immediate Effectiveness of Proposed Rule Changes
A proposed rule change filed by NYSE Arca to establish trading collars for market orders (SR-NYSEArca-2010-67) 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 July 12. (Rel. 34-62485)
A proposed rule change filed by NYSE Amex establishing a fee and credit structure for trading Nasdaq-listed securities on NYSE Amex pursuant to unlisted trading privileges and implementing a new fee for Crossing Session II for both listed and traded securities (SR-NYSEAmex-2010-69) 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 July 12. (Rel. 34-62488)
A proposed rule change filed by The NASDAQ Stock Market to delay the application of NASDAQ Rule 4611(d) (SR-NASDAQ-2010-086) 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 July 12. (Rel. 34-62491)
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