Securities Regulators Publish Updated Best Practices for Firms Serving Senior Investors
The Securities and Exchange Commission, Financial Industry Regulatory Authority (FINRA) and North American Securities Administrators Association (NASAA) today updated a joint report that outlines practices being used by financial services firms to strengthen their policies and procedures for serving senior investors as they approach and begin retirement.
The SEC, FINRA and NASAA first published the report in 2008 to highlight proactive steps being taken by some financial services firms in serving senior customers. It was intended to assist the overall industry in enhancing compliance, supervisory and other practices related to older investors. The 2010 Addendum being released today summarizes additional practices now being used by financial services firms and securities professionals in serving senior investors.
Nearly 40 million Americans are 65 or older, and this number is expected to more than double to 89 million by 2050. As a result of the economic downturn, many older investors find themselves with smaller nest eggs than they anticipated. Estimates show that total retirement assets decreased by $4.5 trillion (25 percent) from 2007 to the first quarter of 2009. In light of these demographic trends, securities regulators continue to view the protection of senior investors as a top priority.
Carlo di Florio, Director of the SEC's Office of Compliance Inspections and Examinations, said, "Securities regulators are focused on ensuring a fair market for seniors where sales practices are responsible, the facts are clear, and products are suitable. This report helps firms understand increasing regulatory expectations and effective industry practices that better protect senior investors."
NASAA President Denise Voigt Crawford said, "Securities regulators continue to bring solid enforcement cases to protect our seniors from investment fraud and abuse. Strong regulation coupled with effective industry compliance, supervision and innovative senior-specific practices are essential toward ensuring that our growing population of senior investors is being treated fairly and responsibly by the financial services industry."
Susan Axelrod, FINRA Executive Vice President and head of Sales Practice, said, "Securities regulators are working to ensure that retiring baby boomers are properly served and protected. For that reason, we continue to encourage firms to adopt practices that result in the fair treatment of senior investors."
The 2010 Addendum focuses on the following categories when describing the latest practices being used by firms and securities professionals when serving senior investors:
Securities regulators are sharing this updated information as useful suggestions for other securities firms and professionals to ensure that they serve senior investors in an ethical, respectful and informed manner. Financial services firms are urged to continue developing practices that will help them to better serve their senior customers.
The 2010 Addendum is available at:
(Press Rel. 2010-147)
SEC, CFTC to Host August 20 Roundtable on Clearing and Listing of Swaps and Security-Based Swaps
The Securities and Exchange Commission and Commodity Futures Trading Commission staffs will hold a public roundtable on August 20 to discuss issues related to governance and conflicts of interest in the clearing and listing of swaps and security-based swaps.
The roundtable will assist both agencies in the rulemaking process to implement the Dodd-Frank Wall Street Reform and Consumer Protection Act.
The roundtable will be held at the CFTC hearing room at Three Lafayette Centre, 1155 21st Street NW, Washington, D.C. The discussion will be open to the public with seating on a first-come, first-served basis. Members of the public may also listen by telephone and should be prepared to provide their first name, last name, and affiliation.
Members of the public wishing to submit their views on the topics addressed at the discussion may do so through the comment form or e-mail address on the SEC website or the governance rulemaking page on the CFTC website.
All submissions provided to either the CFTC or the SEC in any electronic form or on paper will be published on the website of the respective agency, without review and without removal of personally identifying information.
Agenda for the Joint CFTC-SEC Public Roundtable Discussion
(Press Rel. 2010-148)
SEC, CFTC Seeking Public Comment on Definitions and Regulation of Mixed Swaps
The Securities and Exchange Commission and the Commodity Futures Trading Commission today published a joint advance notice of proposed rulemaking that requests public comment to assist the agencies in further defining certain key terms and prescribing regulations regarding "mixed swaps" as required by Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Title VII provides for the comprehensive regulation of swaps and security-based swaps and includes definitions of key terms relating to such regulation. It requires the CFTC and the SEC, in consultation with the Board of Governors of the Federal Reserve System, to jointly further define the terms "swap," "security-based swap," "swap dealer," "security-based swap dealer," "major swap participant," "major security-based swap participant," "eligible contract participant" and "security-based swap agreement."
Title VII also requires the CFTC and SEC to jointly prescribe regulations regarding "mixed swaps" as necessary to carry out the purposes of Title VII.
The CFTC and SEC invite public comment with respect to all aspects of the statutory definitions of these key terms. The agencies also invite commenters to express views on the regulation of "mixed swaps."
This request for comment is in addition to the series of email links on the CFTC's and SEC's websites to facilitate public comment regarding regulatory reform rulemaking under the Dodd-Frank Act.
The public comment period will remain open for 30 days following publication of the advance notice in the Federal Register. Commenters are urged to submit comments as soon as possible within the 30-day comment period. (Press Rel. 2010-149)
Commission Revokes Registration of Securities of Associated Golf Management, Inc. (n/k/a Delta Mining & Exploration Corp.) for Failure to Make Required Periodic Filings
On Aug. 13, 2010, the Commission revoked the registration of each class of registered securities of Associated Golf Management, Inc. (n/k/a Delta Mining & Exploration Corp.) (Delta Mining) for failure to make required periodic filings with the Commission.
Without admitting or denying the findings in the Order, except as to jurisdiction, which it admitted, Delta Mining consented to the entry of an Order Making Findings and Revoking Registration of Securities Pursuant to Section 12(j) of the Securities Exchange Act of 1934 as to Associated Golf Management, Inc. (n/k/a Delta Mining & Exploration Corp.) finding that it had failed to comply with Section 13(a) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 13a-1 and 13a-13 thereunder and revoking the registration of each class of Delta Mining's securities pursuant to Section 12(j) of the Exchange Act. This order settled the proceedings brought against Delta Mining in In the Matter of Applied Nanoscience, Inc., et al., Administrative Proceeding File No. 3-13943.
Brokers and dealers should be alert to the fact that Exchange Act Section 12(j) provides, in pertinent part, as follows:
No member of a national securities exchange, broker, or dealer shall make use of the mails or any means or instrumentality of interstate commerce to effect any transaction in, or to induce the purchase or sale of, any security the registration of which has been and is suspended or revoked . . . .
For further information see Order Instituting Administrative Proceedings and Notice of Hearing Pursuant to Section 12(j) of the Securities Exchange Act of 1934, In the Matter of Applied Nanoscience, Inc., et al., Administrative Proceeding File No. 3-13943, Exchange Act Release No. 62309, June 17, 2010. (Rel. 34-62714; File No. 3-13943)
In the Matter of Paul Greenwood
On Aug. 13, 2010, the Commission issued an Order Instituting Administrative Proceedings Pursuant to Section 15(b) of the Securities Exchange Act of 1934 (Exchange Act) and Section 203(f) of the Investment Advisers Act of 1940 (Advisers Act), Making Findings and Imposing Remedial Sanctions (Order) against Paul Greenwood (Greenwood), age 63, and a resident of North Salem, New York. The Order finds that, from at least 1996 to February 2009, he was the co-general partner, Chief Operating Officer and Chief Financial Officer of WG Trading Company, Limited Partnership, a registered broker-dealer. Greenwood was also a minority owner of Westridge Capital Management, Inc., a registered investment adviser. On July 29, 2010, a judgment was entered by consent against Greenwood, permanently enjoining him from future violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and Sections 206(1), 206(2) and 206(4) of the Advisers Act and Rule 206(4)-8 thereunder, in the civil action entitled SEC v. WG Trading Investors, L.P., et al., Civil Action Number 09 CV 1750 (GBD), in the United States District Court for the Southern District of New York. The Order finds that the Commission's complaint alleged that, since at least 1996, Greenwood solicited investors by promising to invest their money in an enhanced equity index strategy. However, instead of investing the money as promised, Greenwood misappropriated investor funds for his own personal use.
Based on the above, the Order bars Greenwood from association with any broker, dealer or investment adviser. Greenwood 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. 34-62720; IA-3068; File No. 3-14007)
SEC Seeks Receiver in Alleged Houston Oil and Gas Fraud
On Aug. 11, 2010, the U.S. Securities and Exchange Commission filed a complaint in the United States District Court for the Southern District of Texas, Houston Division seeking emergency relief including the appointment of a receiver, against Houston resident Jon C. Ginder (Ginder) and two related oil and gas companies, Northamerican Energy Group, Inc. (NEG) and Northamerican Energy Group Corp. (NEGC). The complaint alleges that from February 2008 to May 2010, the defendants fraudulently raised approximately $3.5 million from over 50 investors nationwide through unregistered oil and gas limited partnership offerings. Investors were solicited through television advertisements touting annual returns as high as 40% from low risk producing wells. The estimated returns were purportedly based upon historical oil and gas data. In fact, the complaint alleges that historical oil and gas production from the leases in the first two partnership offerings was very poor, and many of the wells had no recent production history.
In connection with the first, and largest offering that raised in excess of $2.4 million, investors were told that funds would be used only for partnership purposes, specifically to purchase leases and renovate existing wells to "further enhance monthly production." Contrary to these representations, the complaint alleges that $800,000 of investor funds were utilized to purchase leases from a private company Ginder controlled for an undisclosed profit of approximately $700,000 in cash plus an additional ten partnership units worth $60,000 per unit — in essence an undisclosed profit of $1.3 million. Further, without the partners' approval, it is alleged that Ginder withdrew $300,000 from the partnership's operating account to make an unsecured and non-interest bearing "loan" to a penny stock company operated by a personal friend and in which Ginder owned stock. The general partner has also borrowed over $478,000 from the partnership. None of these funds were repaid to the partnership. Ginder also paid at least $210,000 of investor funds for the television advertising campaign that generated investor leads.. None of the above expenditures, which total approximately 70% of the offering proceeds, were approved by investors.
In connection with another offering that raised approximately $900,000, it is alleged that the defendants made material misstatements and omissions concerning the identity of the general partner, and the defendants' prior oil and gas activities.
The complaint alleges that the defendants violated the registration provisions of Sections 5(a) and 5(c) of the Securities Act of 1933 and the anti-fraud provisions of Section 17(a) of the Securities Act and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. In addition to the emergency relief, the complaint seeks preliminary and permanent injunctions, disgorgement plus prejudgment interest and civil monetary penalties. [SEC v. Jon C. Ginder, Northamerican Energy Group, Inc., and Northamerican Energy Group, Corp. Civil Action No. 4:10-cv-02867 (U.S.D.C Texas, Houston Division)] (LR-21624)
SEC Charges Former CFO of Zoltek Companies, Inc. With Accounting Violations
On Aug. 13, 2010, the Securities and Exchange Commission filed a civil injunctive action in the United States District Court for the Eastern District of Missouri in St. Louis against Kevin J. Schott, the former chief financial officer of Zoltek Companies, Inc., for violating the internal controls, books and records, lying to accountants and certification provisions of the Securities Exchange Act of 1934.
The Commission's complaint alleges that Schott circumvented Zoltek's internal accounting controls and caused Zoltek to make two payments totaling $250,000 to an outside financing consultant who had raised funds for Zoltek in the past, despite an instruction from Zoltek's CEO to not to make the payments. Instead of following Zoltek's internal controls which required the CEO to approve all wire transfers, the complaint alleges that Schott instructed the controller of Zoltek's foreign subsidiary in Hungary on two occasions and instructed him to wire the payments to the financing consultant from the subsidiary's account. According to the complaint, Schott told the Hungarian controller that the payments were for another purpose. Schott then further concealed the payments by creating a false document which he gave to Zoltek's CEO. By mischaracterizing the payments to the consultant, Schott caused Zoltek to make false entries into its books and records. The complaint further alleges that Schott made false and misleading representations in his certifications to the public and to Zoltek's external auditor for the fourth quarter of 2007 and the first quarter of 2008.
Schott has agreed to settle this matter without admitting or denying the allegations in the complaint. Schott has consented to an order permanently enjoining him from violating Section 13(b)(5) of the Exchange Act and Rules 13a-14, 13b2-1 and 13b2-2 thereunder and requiring him to pay a $20,000 civil penalty. [SEC v. Kevin J. Schott, Civil Action No. 4:10-cv-01500 in the United States District Court for the Eastern District of Missouri, Eastern Division] (LR-21625)
Designation of Longer Period for Commission Action on a Proposed Rule
The Commission has designated a longer period for Commission action under Section 19(b)(2) of the Securities Exchange Act of 1934 on proposed rule changes (SR-BATS-2010-018; SR-BX-2010-044; SR-CBOE-2010-065; SR-CHX-2010-14; SR-EDGA-2010-05; SR-EDGX-2010-05; SR-FINRA-2010-033; SR-ISE-2010-66; SR-NYSE-2010-49; SR-NYSEAmex-2010-63; SR-NYSEArca-2010-61; SR-NASDAQ-2010-079; SR-NSX-2010-08) filed by the BATS Exchange, Inc.; Chicago Board Options Exchange, Incorporated; Chicago Stock Exchange, Inc.; EDGA Exchange, Inc.; EDGX Exchange, Inc.; Financial Industry Regulatory Authority, Inc.; International Securities Exchange, LLC; NASDAQ OMX BX, Inc.; The NASDAQ Stock Market LLC; National Stock Exchange, Inc.; New York Stock Exchange LLC; NYSE Amex LLC; and NYSE Arca, Inc.; which relate to trading pauses due to extraordinary market volatility. Publication is expected in the Federal Register during the week of August 16. (Rel. 34-62688A)
Immediate Effectiveness of Proposed Rule Change
A proposed rule change filed by the EDGA Exchange, Inc. (SR-EDGA-2010-11) to amend EDGA Rule 3.13 to conform it to FINRA Rule 5230 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 August 16. (Rel. 34-62694)
Approval of Proposed Rule Change
The Commission approved a proposed rule change (File No. SR-FINRA-2010-026) submitted by the Financial Industry Regulatory Authority, Inc. ("FINRA") to adopt FINRA Rule 5121 (Public Offerings of Securities With Conflicts of Interest) in the consolidated FINRA rulebook. Publication is expected in the Federal Register during the week of August 16. (Rel. 34-62702)
Notice of Findings, Opinion, and Order of the Commission
The Commission has approved a Form 1 application submitted by BATS Y-Exchange, Inc. seeking registration as a national securities exchange pursuant to Section 6 of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of August 16. (Rel. 34-62716)
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