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U.S. Securities and Exchange Commission

SEC News Digest

Issue 2010-201
October 25, 2010

ENFORCEMENT PROCEEDINGS

Delinquent Filers' Stock Registrations Revoked

The registrations of the registered securities of United Education & Software, Inc., United Film Partners, Inc. (n/k/a Seoul Movie USA, Inc.), United Leisure Corp., and United Rayore Gas, Ltd. have been revoked. Each had repeatedly failed to file required annual and quarterly reports with the Securities and Exchange Commission. Thus, each 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. The revocations were ordered in an administrative proceeding before an administrative law judge. (Rel. 34-63168; File No. 3-14059)


District Court Enters Final Judgment Imposing Disgorgement and a Civil Penalty Against Defendants Berkshire Resources, L.L.C., Berkshire (40L), L.L.P., Berkshire 2006-5, L.L.P., Passmore-5, L.L.P., Gueydan Canal 28-5, L.L.P., Gulf Coast Development #12, L.L.P., and Drilling Deep in the Louisiana Water, J.V.

The Commission announced that on October 15, 2010, the United States District Court for the Southern District of Indiana entered a final judgment imposing disgorgement and a civil penalty against Defendants Berkshire Resources, L.L.C. (Berkshire), Berkshire (40l), L.L.P., Berkshire 2006-5, L.L.P., Passmore-5, L.L.P., Gueydan Canal 28-5, L.L.P., Gulf Coast Development #12, L.L.P., and Drilling Deep In The Louisiana Water, J.V. (with Berkshire, the Berkshire Defendants).

The final judgment held the Berkshire Defendants jointly and severally liable and ordered them to pay $15,400,000 in disgorgement together with $205,846.57 in prejudgment interest thereon for a total of $15,605,846.67. In addition, Berkshire was ordered to pay a civil penalty in the amount of $650,000, pursuant to Section 20(d) of the Securities Act of 1933 and Section 21(d) of the Securities Exchange Act of 1934.

The Commission's June 8, 2009 complaint alleged, among other things, that from April 2006 through December 2007 Berkshire, a Wyoming company, and others raised approximately $15.5 million from approximately 265 investors in the US and Canada through a series of unregistered, fraudulent offerings of securities in the form of "units of participation".

On September 3, 2010, the Court entered separate final judgments against the other defendants and relief defendants in this case enjoining them from further violations of the securities laws and ordering them to pay full disgorgement, prejudgment interest, and civil penalties. [SEC v. Berkshire Resources, L.L.C., et al., Case No.: 1:09-CV-00704-SEB-JMS (S.D. Ind.)] (LR-21708)


SEC Charges Connecticut-Based Hedge Fund Manager With Fraud in Valuing Portfolio Assets, Making Misrepresentations to Investors, and Misuse of Investor Assets

The Securities and Exchange Commission announced that it charged hedge fund manager Stephen M. Hicks and his investment advisory businesses with defrauding investors in funds managed by Southridge Capital Management LLC and Southridge Advisors LLC by overvaluing the largest position held by the funds. The SEC alleges that the hedge fund manager also made material misrepresentations to investors and misused investor money to pay legal and administrative expenses of other funds managed by Hicks and Southridge.

The SEC alleges that Hicks, of Ridgefield Connecticut, overvalued the largest position held by the funds by fraudulently misstating the acquisition price of the assets. According to the SEC's complaint, Hicks arranged a transaction in which a telecommunications company acquired by the Southridge funds when the company defaulted on a $769,000 note, was sold to Fonix Corporation in exchange for securities with a stated valued of $33 million in early 2004. The complaint further alleges that neither the asset sold nor the securities obtained in the transaction were accurately valued by Southridge and Hicks. Thereafter, the SEC alleges, the Fonix position was wrongfully valued at its acquisition cost, and the funds paid or accrued hundreds of thousands in management fees every year since 2004.

The SEC further alleges that beginning in late 2003, Hicks fraudulently solicited investors to put money in new funds by telling them that the majority of their investments would be placed in unrestricted, free-trading shares (meaning shares that were available to be sold), cash, or near cash. According to the complaint, Hicks raised $80 million for the new funds between 2004 and 2007. The complaint further alleges that, at year-end 2006, more than one-third of the assets in one new fund (and more than half of the assets in another new fund) were invested in relatively illiquid deals. By 2007, the SEC alleges, many investors in these funds were having difficulty redeeming their money because it had been invested in relatively illiquid securities.

The SEC also alleges that between 2005 and 2008, Southridge and Hicks caused certain of the funds that had available cash to pay approximately $5 million of legal and administrative expenses of older funds that were illiquid and had no available cash. The SEC's complaint alleges that investors in the funds from which money was taken were not told about this misappropriation of fund assets while it was taking place. According to the SEC's complaint, in February 2009, Hicks sent a letter to investors admitting that certain legal and administrative expenses had been improperly allocated between the funds. Rather than repaying the money to the funds, however, the SEC alleges that Southridge and Hicks transferred certain illiquid securities to the funds.

The SEC complaint charges defendants with violations of Section 17(a) of the Securities Act, Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder, and Sections 206(1), 206(2) and 206(4) if the Investment Advisers Act and Rule 206(4)-8 thereunder. The Commission seeks injunctive relief, disgorgement of profits, prejudgment interest, and financial penalties. [SEC v. Southridge Capital Management LLC, Southridge Advisors LLC, and Stephen M. Hicks, Civ. Action No. 3:10-cv-1685] (LR-21709)


INVESTMENT COMPANY ACT RELEASES

Triangle Capital Corporation, et al.

An order has been issued on an application filed by Triangle Capital Corporation (Triangle), et al. under the Investment Company Act. The order amends a prior order that permits Triangle, which is a business development company (BDC), and its wholly-owned small business investment company (SBIC) subsidiary to engage in certain transactions that otherwise would be permitted if Triangle and such SBIC subsidiary were one company and to file certain reports on a consolidated basis, and it also permits Triangle to adhere to a modified asset coverage requirement. The amended order permits such SBIC subsidiary, which is also a BDC, and a newly formed SBIC subsidiary or any future SBIC subsidiary to engage in certain transactions that otherwise would be permitted if Triangle and the SBIC subsidiaries were one company and to permit Triangle to adhere to a modified asset coverage requirement. (Rel. IC-29482 - October 22)


SELF-REGULATORY ORGANIZATIONS

Immediate Effectiveness of Proposed Rule Changes

A proposed rule change filed by the Chicago Board Options Exchange to Expand the Range of Strike Price Intervals for VIX Options (SR-CBOE-2010-096) 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 October 18. (Rel. 34-63155)

A proposed rule change filed by the NASDAQ Stock Market to codify pricing for co-location services (SR-NASDAQ-2010-133) 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 October 18. (Rel. 34-63156)

A proposed rule change filed by the EDGA Exchange (SR-EDGA-2010-15) to amend EDGA Rule 11.5 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 October 18. (Rel. 34-63161)

A proposed rule change filed by the EDGX Exchange (SR-EDGX-2010-14) to amend EDGX Rule 11.5 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 October 18. (Rel. 34-63163)

A proposed rule change (SR-C2-2010-005), filed by C2 Options Exchange to modify Rule 6.12 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 October 18. (Rel. 34-63164)

A proposed rule change (SR-ISE-2010-102) filed by the International Securities Exchange relating to the Sales Value Fee 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 October 18. (Rel. 34-63165)


JOINT INDUSTRY PLAN RELEASES

Notice of Filing and Immediate Effectiveness of Amendment to the Plan for the Purpose of Developing and Implementing Procedures to Facilitate the Listing and Trading of Standardized Options

A proposed amendment to the Plan for the Purpose of Developing and Implementing Procedures to Facilitate the Listing and Trading of Standarized Options (4-443) filed by C2 Exchange pursuant to Section 11A(a)(3) of the Securities Exchange Act of 1934 to add C2 Exchange, Incorporated as a Sponsor has become effective. Publication is expected in the Federal Register during the week of October 18. (Rel. 34-63162)


SECURITIES ACT REGISTRATIONS


RECENT 8K FILINGS

 

http://www.sec.gov/news/digest/2010/dig102510.htm


Modified: 10/25/2010