RULES AND RELATED MATTERS
Amendments to Form ADV
The Commission published a release adopting amendments to Part 2 of Form ADV and related rules under the Investment Advisers Act of 1940. The amendments require investment advisers to provide clients with narrative brochures containing plain English descriptions of the advisers' businesses, services, and conflicts of interest. The amendments also require advisers to electronically file their brochures with the Commission and the brochures will be available to the public through the Commission's website. In addition, the amendments require advisers to provide "brochure supplements" to clients that contain information about the advisory employees that will provide advisory services to that client.
The release and amended Part 2 are available at http://www.sec.gov/rules/final/2010/ia-3060.pdf. For further information, please call (202) 551-6999.
Commission Dismisses Exchange Act Section 12(j) Proceeding Against Verint Systems Inc.
On July 28, 2010, the Securities and Exchange Commission dismissed an administrative proceeding against Verint Systems Inc. (Verint), which had been brought under Section 12(j) of the Securities Exchange Act of 1934 (Exchange Act) to determine whether the registration of each class of Verint's securities should be revoked or suspended for a period not exceeding twelve months for failure to file required periodic reports. The Commission accepted Verint's Offer of Settlement and entered the dismissal order after Verint filed with the Commission reports covering all of the missing periods.
Without admitting or denying the findings in the Order, except as to jurisdiction, which it admitted, Verint consented to the Commission's Order Making Findings and Dismissing Administrative Proceedings Instituted Pursuant to Section 12(j) of the Securities Exchange Act of 1934. The Order finds that Verint failed to comply with Exchange Act Section 13(a) and Rules 13a-1 and 13a-13 thereunder because, at the time this proceeding was instituted, it had not filed with the Commission a Form 10-K since April 25, 2005 or a Form 10-Q since Dec. 12, 2005 and because, during the proceeding, it had not timely filed its Form 10-K for the period ended Jan. 31, 2010. Verint filed reports covering all delinquent periods following the commencement of this administrative proceeding and it filed on time its Form 10-Q for the quarter ended April 30, 2010.
In a separate civil action filed in the U.S. District Court for the Eastern District of New York, Verint consented to the entry of a final judgment, entered on March 9, 2010, which enjoined the company from violating, among other things, the reporting provisions of the federal securities laws, specifically Exchange Act Section 13(a) and Rules 13a-1 and 13a-13 thereunder.
Order Instituting Administrative Proceedings and Notice of Hearing Pursuant to Section 12(j) of the Securities Exchange Act of 1934, In the Matter of Verint Systems Inc., Administrative Proceeding File No. 3-13802, Exchange Act Release No. 61635, March 3, 2010. (Rel. 34-62583; File No. 3-13802)
Securities and Exchange Commission Orders Hearing on Registration Revocation Against Eight Public Companies for Failure to Make Required Periodic Filings
Today 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 eight companies for failure to make required periodic filings with the Commission:
In this Order, the Division of Enforcement (Division) alleges that the eight 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 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. 34-62586; File No. 3-13982)
Gad Grieve Sanctioned
Grant Ivan Grieve a/k/a Gad Grieve (Grieve), a former New Yorker now residing in Israel, 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 January 2010, Grieve was enjoined from violating the antifraud provisions of the federal securities laws. He and two unregistered investment advisers that he controlled had raised approximately $50 million for investment in two hedge funds, using counterfeit documents and false financial information "certified" by a phony auditing firm, and provided existing and prospective investors with false monthly statements, newsletters, and fact sheets that materially overstated the funds' performance and assets. (Rel. IA-3061; File No. 3-13799)
In the Matter of Daren L. Palmer
On July 29, 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 Daren L. Palmer (Palmer). The Order finds that on July 19, 2010, Palmer consented to the entry of final judgment enjoining him from 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 promulgated thereunder.
Based on the above, the Order bars Palmer from association with any broker or dealer. Palmer 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. 34-62591; File No. 3-13984)
SEC Charges Citigroup Inc., Gary L. Crittenden, and Arthur H. Tildesley, Jr. in Connection with Misleading Disclosures Regarding Citigroup's Exposure to Sub-Prime Assets
The Securities and Exchange Commission today charged Citigroup Inc. with misleading investors about the extent of the company's exposure to sub-prime mortgage-related assets during 2007.
The SEC alleges in its complaint against Citigroup that between July 20, 2007, and Nov. 4, 2007, in response to intense investor interest in the topic, Citigroup repeatedly made misleading statements about the extent of its holdings of assets backed by sub-prime mortgages in earnings calls and public filings. Throughout the period in question, Citigroup represented that its sub-prime exposure in Citigroup's investment banking unit, Citi Markets & Banking, was $13 billion or less, when in fact, at all times during that period, the investment bank's sub-prime exposure was over $50 billion.
Citigroup, a global financial services company based in New York City, agreed to pay a $75 million penalty to settle the SEC's charges.
The SEC alleges that, beginning in July 2007, Citigroup made a series of statements in earnings calls and public filings in which it represented that its investment bank had approximately $13 billion of sub-prime exposure, and that the investment bank's sub-prime exposure declined over the course of 2007. In fact, the $13 billion figure that Citigroup disclosed omitted two categories of sub-prime-backed assets, "super senior" tranches of collateralized debt obligations (CDOs) and "liquidity puts," through which Citigroup had approximately $43 billion of additional sub-prime exposure. Citigroup only disclosed the extent of its holdings of the super senior tranches of CDOs and the liquidity puts in November 2007, after a sharp decline in their value. According to the SEC's complaint, the misleading disclosures were made at a time of heightened investor and analyst interest in public company exposure to sub-prime mortgages.
According to the SEC's complaint, as early as April 2007, Citigroup's senior management began to gather information on the investment bank's sub-prime exposure for purposes of possible public disclosure. From the outset of these efforts, internal documents describing the investment bank's exposures included the super senior CDO tranches and the liquidity puts, while noting that they bore little risk of default. Nevertheless, on four occasions - a July 20, 2007 earnings call; a July 27, 2007 Fixed Income investors call; an October 1, 2007 earnings pre-announcement; and an October 15, 2007 earnings call - Citigroup stated that its investment bank's sub-prime exposure was $13 billion or slightly less, and had been managed down from $24 billion at the end of 2006. The statements made in the October 1, 2007 earnings pre-announcement were included in a Form 8-K that Citigroup filed with the Commission. Citigroup did not disclose in any of these communications that it was excluding the amount of its sub-prime exposure from super senior tranches of CDOs or liquidity puts.
Without admitting or denying the SEC's allegations, Citigroup Inc. consented to the entry of a final judgment that (1) permanently restrains and enjoins it from violation of Section 17(a)(2) of the Securities Act of 1933, Section 13(a) of the Securities Exchange Act of 1934, and Exchange Act Rules 12b-20 and 13a-11 and (2) orders it pay penalty and disgorgement of $75,000,001. [SEC v. Citigroup Inc., Civil Action No. 1:10-cv-01277 (ESH) (D.D.C. July 29, 2010)] (LR-21605)
Separately, the SEC also instituted settled cease-and-desist proceedings against Gary Crittenden, Citigroup's former chief financial officer, and Arthur Tildesley, Jr., Citigroup's former head of Investor Relations, for their roles in causing Citigroup to make certain of the misleading statements. (Rel. 34-62593; File No. 3-13985)
INVESTMENT COMPANY ACT RELEASES
Virtus Opportunities Trust, et al.
A notice has been issued giving interested persons until Aug. 20, 2010, to request a hearing on an application filed by Virtus Opportunities Trust, et al., for an order under Section 12(d)(1)(J) of the Investment Company Act for an exemption from Sections 12(d)(1)(A) and (B) of the Act and under Sections 6(c) and 17(b) of the Act for an exemption from Section 17(a) of the Act. The order would amend and supersede a prior order that permits certain registered open-end management investment companies to acquire shares of other registered open-end management investment companies and unit investment trusts both within and outside the same group of investment companies. The amended order would subject applicants to different conditions than the prior order and delete a condition of the prior order. (Rel. IC-29370 - July 27)
Proposed Rule Changes
NYSE Arca filed a proposed rule change (SR-NYSEArca-2010-69) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 amending Rule 6.47. Publication is expected in the Federal Register during the week of August 2. (Rel. 34-62580)
The Financial Industry Regulatory Authority filed a proposed rule change (SR-FINRA-2010-035) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 to amend the Discovery Guide, which includes Document Production Lists, and to make conforming changes to Rules 12506 and 12508 of the Code of Arbitration Procedure for Customer Disputes. Publication is expected in the Federal Register during the week of August 2. (Rel. 34-62584)
JOINT INDUSTRY PLAN RELEASES
Immediate Effectiveness of Amendment to a National Market System Plan
The proposed amendment to the National Market System Plan for the Selection and Reservation of Securities Symbols filed by EDGA Exchange and EDGX Exchange in order to each become a party to the plan, has become effective pursuant to Section 11A(a)(3) of the Securities Exchange Act of 1934 and Rule 608 thereunder. Publication is expected in the Federal Register during the week of July 26. (Rel. 34-62573)
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