SEC Announces Fair Fund Distribution to Investors Harmed by Market Timing in Strong Mutual Funds
The Securities and Exchange Commission announces the second in a series of Fair Fund distributions that will return the approximately $140 million Fair Fund to injured investors in the Strong family of mutual funds as part of the SEC's 2004 settlement with former Menomonee Falls, Wisconsin investment advisor Strong Capital Management, Inc. (SCM), SCM founder and majority owner Richard S. Strong, and others (Respondents), for permitting undisclosed market timing in certain Strong funds. This second distribution of more than $32 million will go to more than 149,000 investors. More than $83 million was distributed to more than 458,000 in the first distribution.
The SEC brought and settled public administrative and cease-and-desist proceedings in 2004 against Respondents. Without admitting or denying the SEC's findings, except as to jurisdiction over them and the subject matter of the proceedings, Respondents consented to an SEC Order charging antifraud violations and requiring them to pay more than $140 million in disgorgement and civil penalties.
The Fair Fund Administrator responsible for the distribution is BNY Mellon Asset Servicing, US Funds Service, formally known as PNC Global Investment Servicing. Investor questions regarding the distribution may be directed to BNY Mellon Asset Servicing at (800) 555-7718. Information regarding the distribution, including the names of the specific mutual funds affected by the distribution, can also be obtained at http://www.strongsettlement.com.
SEC Publishes Agenda and Announces Speakers for Small Business Forum
The Securities and Exchange Commission today published the agenda and announced the speakers scheduled to appear at its November 18 forum on small business capital formation.
The SEC forum will begin at 9 a.m., ET, at the Commission's Washington, D.C., headquarters. It will include remarks by SEC Chairman Mary L. Schapiro and SEC Commissioner Troy A. Paredes. The agenda includes a panel on selected provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act relating to securities regulation and small business. The agenda also includes presentations by private organizations concerned with small business capital formation. The afternoon agenda consists of breakout groups to develop recommendations to facilitate small business capital formation.
Pre-registered members of the public may attend the forum without charge. Online registration is available at the SEC small business forum Web page. The forum also will be webcast live at www.sec.gov.
Closed Meeting - Thursday, November 18, 2010 - 3:00 p.m.
The subject matter of the Closed Meeting scheduled for Thursday, November 18, will be: institution and settlement of injunctive actions; institution and settlement of administrative proceedings; consideration of amicus participation; and other matters relating to enforcement proceedings.
At times, changes in Commission priorities require alterations in the scheduling of meeting items. For further information and to ascertain what, if any, matters have been added, deleted or postponed, please contact: The Office of the Secretary at (202) 551-5400.
Commission Permanently Denied New York Attorney Steven Altman the Privilege of Appearing or Practicing Before the Commission
The Commission has permanently denied Steven Altman, an attorney licensed in New York, the privilege of appearing or practicing before the Commission pursuant to Rule 102(e(1)(ii) of the Commission's Rules of Practice and Section 4C of the Securities Exchange Act of 1934. The Commission found that Altman engaged in unethical and improper conduct, in violation of New York bar rules, while representing a client who was a prospective witness for the Division of Enforcement in a Commission administrative proceeding. Specifically, the Commission found that Altman offered to have his client evade service of a subpoena and/or testify falsely in exchange for financial benefits from two respondents in the proceeding. The Commission determined that the public interest required permanent denial of the privilege of appearing and practice before it, stating that Altman's actions were "fundamentally repugnant" to the integrity of its processes. The Commission further stated that permanent denial of the privilege of appearing and practicing before it would deter others from engaging in similar conduct. (Rel. 34-63306; File No. 3 12944)
SEC Charges Former CEO and CFO of Massachusetts Information Technology Company With Securities Fraud
On November 10, the Securities and Exchange Commission charged Jon Latorella of Marblehead, Massachusetts, and James Fields of Brookline, Massachusetts, the former CEO and CFO respectively of LocatePlus Holdings Corporation (LocatePlus), with securities fraud concerning a scheme to fraudulently inflate revenue at LocatePlus as well as a scheme to manipulate the stock of another company. LocatePlus is a Massachusetts-based information technology company that sells on-line access to public record databases for investigative searches. The Commission previously charged LocatePlus for its role in this case in a complaint filed on October 14, 2010. The action on November 10 amends that complaint to add Latorella and Fields as defendants to the case.
According to the amended complaint, filed in federal court in Boston, Latorella and Fields orchestrated two separate schemes to commit securities fraud. In the first scheme, the Commission alleges that all three defendants engaged in securities fraud by misleading LocatePlus' investors about the company's funding and revenue. The amended complaint charges that Latorella and Fields fraudulently inflated the company's publicly-reported revenue for fiscal years 2005 and 2006 by creating a fictitious customer called "Omni Data." LocatePlus then improperly recognized millions of dollars in payments from Omni Data as revenue. As the amended complaint alleges, Omni Data was actually funded by approximately $2 million in cash routed through entities secretly controlled by Latorella and Fields.
According to the amended complaint, beginning in 2005, Latorella and Fields also masterminded another fraudulent scheme to manipulate the market for stock in Paradigm Tactical Products, Inc., a Massachusetts-based company that sold hand-held metal detectors. The amended complaint charges that Latorella and Fields, who were a founder and a Director of Paradigm respectively, caused Paradigm to issue shares to brokerage accounts that appeared to be owned by independent investors, but were secretly controlled by Latorella. According to the amended complaint, Latorella and Fields failed to register the sale of these shares as the securities laws require and made misrepresentations to get these shares quoted on a public market. Then, after causing the publication of false press releases in an attempt to increase Paradigm's stock price, Latorella sold the shares he secretly controlled into the public market at an artificially inflated price, again in unregistered transactions. Some of the proceeds of these sales were transferred to Omni Data, and used to fund payments to LocatePlus.
The SEC's amended complaint charges Latorella, Fields and LocatePlus, variously, with violations of Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 and Sections 10(b), 13(a),13(b)(2)(A), 13(b)(2)(B), 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5, 12b-20, 13a-1, 13a-11, 13a-13, 13b2-1 and 13b2-2 thereunder, and seeks, against all defendants, civil injunctions, disgorgement and civil penalties and, against Fields and Latorella, bars against serving as an officer or director of any public company and against participating in an offering of penny stock.
Separately, on November 10, the U.S. Attorney's Office for the District of Massachusetts filed an indictment charging Latorella and Fields with criminal violations based on the same misconduct.
The Commission's investigation is continuing.
In April 2010, the SEC filed a settled civil injunctive action against Paradigm's former president Daniel O'Riordan, alleging violations of the antifraud and registration provisions of the federal securities laws in connection with the scheme involving Paradigm outlined above. O'Riordan consented to the entry of a permanent injunction as well as a permanent officer-director bar and a permanent penny stock bar. In addition, O'Riordan pled guilty to committing criminal securities fraud relating to his conduct relating to Paradigm, and is scheduled to be sentenced on December 2, 2010 by the Honorable Mark L. Wolf in the District of Massachusetts. [SEC v. LocatePlus Holdings Corporation, 1:10-CV-11751 (D. Mass.)] (LR-21735; AAE Rel. 3213)
SEC Charges Texas Oil and Gas Promoters and their Companies with Fraud
On November 9, the Securities and Exchange Commission filed an emergency civil action in the United States District Court for the Eastern District of Texas against Garry B. Smith, Robert J. Nelson and their companies, Overland Energy, Inc. and Acorn Energy, Inc., for their roles in defrauding investors in oil and gas securities offerings. The Commission also charged Steven M. Ray with violating federal broker-registration requirements. The same day, the Court entered a temporary restraining order against Smith, Nelson and Acorn, as well as asset freezes and other relief against all defendants (except Ray) and against relief defendant Tega Operating Company.
The Commission alleges that, from at least September 2007 to the present, Smith and Nelson raised approximately $11 million dollars from more than 180 investors nationwide, through six securities offerings conducted through Overland and Acorn. The first five offerings were sold by unregistered salespeople employed by Overland, including Smith, Nelson and Ray. The Commission alleges that Overland and Acorn gave prospective investors private placement memoranda, approved by Smith and Nelson, which contained material misrepresentations and omissions about the use of offering proceeds, potential oil and gas production, and potential investment returns.
The Commission's complaint charges that Overland, Smith and Nelson violated 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 Commission also alleges that Acorn violated Sections 17(a) of the Securities Act and Sections 10(b) of the Exchange Act and Rule 10b-5 thereunder. Ray is charged with violating Section 15(a) of the Exchange Act. In addition to the relief already obtained, the Commission seeks appointment of a receiver, civil penalties, preliminary and permanent injunctive relief and disgorgement of ill-gotten gains against the defendants. The Commission also named Tega as a relief defendant for purposes of recovering investor funds it improperly received. [SEC v. Overland Energy, Inc., Acorn Energy, Inc., Garry B. Smith, Robert J. Nelson and Steven M. Ray, Defendants, and Tega Operating Company, Relief Defendant, Civil Action No. 4:10-cv-613 (E.D. Tex.)] (LR-21736)
SEC Charges Purported Oil Investor for Conducting Ponzi Scheme
The Securities and Exchange Commission today announced that it filed a civil injunctive action against Joseph Paul Zada of Grosse Pointe Shores, Michigan and his company, Zada Enterprises, LLC, accusing them of conducting a fraudulent, unregistered offer and sale of at least $27.5 million in securities.
The SEC's complaint, filed in U.S. District Court in Detroit, alleges that Zada raised at least $27.5 million from at least 60 investors between January 2006 and August 2009 through the offer and sale of promissory notes. According to the complaint, the promissory notes provided various interest rates ranging from seven to twelve percent per year and Zada told some investors that they would earn as much as 48 percent on their investment. The complaint alleges that Zada told investors that he would invest their funds in oil-related investments. He also told investors that he had exclusive access to certain oil investments and that he had business contacts in oil-producing countries in the Middle East. Zada also told investors that he had earned substantial returns from prior oil-related investments.
The SEC alleges that Zada's representations were false and that he never invested any funds in oil-related investments or any other type of investment. According to the SEC's complaint, Zada was instead conducting a Ponzi scheme, utilizing funds from new investors to pay earlier investors. Zada used approximately $12.4 million to make monthly "interest" and return of principal payments to investors. He used all other available funds to pay his personal and other expenses unrelated to any investments. Examples include approximately $8 million to purchase and improve his personal residences in Grosse Pointe Shores, Michigan and his equestrian facility in Palm Beach County, Florida, $2.3 million to pay personal credit card bills, $505,000 to pay insurance premiums, $494,000 on legal and accounting fees, $417,000 for jewelry, $221,000 to pay taxes, and $103,000 to buy cars.
The SEC's complaint charges Zada and Zada Enterprises with violations of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The SEC is seeking a permanent injunction and disgorgement of ill-gotten gains with prejudgment interest, jointly and severally, against Zada and Zada Enterprises and a civil penalty against Zada. [SEC v. Joseph Paul Zada and Zada Enterprises, LLC, Case No. 2:10-cv-14498-DPH-PJK (E.D. Mich.)] (LR-21737)
SEC Obtains Final Judgment on Consent Against Defendant Great American Technologies, Inc.
The Securities and Exchange Commission announced today that on November 5, 2010, Judge Denise L. Cote entered a Final Judgment on consent against defendant Great American Technologies, Inc. (GAT) in connection with its role in an alleged offering fraud. Previously, on April 8, 2010, the Court entered a Final Judgment of Default against defendant Vincent Setteducate a/k/a Sette, which ordered him to pay disgorgement in the amount of $2,319,160, $414,861.45 in pre-judgment interest therein, and a civil penalty in the amount of $2,319,160. The Court also entered a permanent injunction against Sette and barred him from serving as an officer or director of a public company.
The Commission's Complaint alleged that between approximately May 2002 and February 2007, GAT and Sette, the company's Vice President of Sales and Marketing, sold $2.3 million of unregistered common stock to over 100 investors. Throughout the course of this stock offering, GAT and Sette made numerous materially misleading statements, and failed to disclose material information, to investors to induce them to purchase shares of GAT. In consenting to the Final Judgment, GAT neither admits nor denies the allegations in the Complaint.
The Judgment against GAT enjoins it from violating the registration and antifraud provisions of the federal securities laws, Sections 5(a) and 5(c) of the Securities Act of 1933 and Section 17(a) of the Securities Act and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. [SEC v. Great American Technologies, Inc. and Vincent Setteducate a/k/a Vincent Sette, Civil Action No. 07-CV-10694 (S.D.N.Y.)] (LR-21738)
Immediate Effectiveness of Proposed Rule Changes
A proposed rule change filed by NASDAQ OMX BX to modify fees for the NASDAQ OMX BX Equities System (SR-BX-2010-074) 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 November 15. (Rel. 34-63285)
A proposed rule change filed by NYSE Amex (SR-NYSEAmex-2010-105) making a technical amendment to its rules to insert the specific date for the Additional Expiration Months Pilot Program 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 November 15. (Rel. 34-63287)
A proposed rule change filed by NYSE Arca (SR-NYSEArca-2010-102) making a technical amendment to its rules to insert the specific date for the Additional Expiration Months Pilot Program 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 November 15. (Rel. 34-63288)
A proposed rule change filed by NYSE Arca relating to fees for NYSE Arca depth-of-book data (SR-NYSEArca-2010-97) 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 November 15. (Rel. 34-63291)
A proposed rule change filed by BATS Y-Exchange (SR-BYX-2010-005) related to fees for use of BATS Y-Exchange 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 November 15. (Rel. 34-63299)
A proposed rule change filed by BATS Exchange (SR-BATS-2010-031) related to fees for use of BATS Exchange 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 November 15. (Rel. 34-63300)
A proposed rule change filed by the International Securities Exchange to expand the $0.50 Strike Program (SR-ISE-2010-108) 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 November 15. (Rel. 34-63304)
A proposed rule change filed by the Municipal Securities Rulemaking Board relating to amendments to Rule A-7, on Assessments, and Rule A-8, on Rulemaking Procedures (SR-MSRB-2010-13) 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 November 15. (Rel. 34-63307)
A proposed rule change filed by the Municipal Securities Rulemaking Board relating to Rule D-13, on a definition of "Municipal Advisory Activities", Rule D-14, on a definition of "Appropriate Regulatory Agency", and amendments to Rule D-11 (Associated Persons), Rule G-40 on electronic mail contacts, and Form G-40, on electronic mail contacts (SR-MSRB-2010-15) 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 November 15. (Rel. 34-63308)
Proposed Rule Changes
NYSE Arca filed a proposed rule change (SR-NYSEArca-2010-98) under Section 19(b)(1) of the Securities Exchange Act of 1934 relating to the listing and trading of the WisdomTree Managed Futures Strategy Fund. Publication is expected in the Federal Register during the week of November 15. (Rel. 34-63292)
The Fixed Income Clearing Corporation filed a proposed rule change (SR-FICC-2010-08) under Section 19(b)(1) of the Exchange Act that would eliminate certain cash adjustments currently processed by the MBSD. Publication is expected in the Federal Register during the week of November 15. (Rel. 34-63301)
NASDAQ OMX PHLX filed a proposed rule change (SR-Phlx-2010-153) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 and Rule 19b-4 thereunder to update and streamline the process for specialist evaluations and clarify the time within which SQTs and RSQTs begin to electronically quote after assignment. Publication is expected in the Federal Register during the week of November 15. (Rel. 34-63305)
Approval of Proposed Rule Change
The Commission approved a proposed rule change (SR-OCC-2010-16) under Section 19(b)(1) of the Exchange Act by The Options Clearing Corporation. The rule change will enable OCC to clear and settle the Weekly Options and Monthly Options on broad-based indexes that were recently approved by the Commission for listing on the Chicago Board Options Exchange. Publication is expected in the Federal Register during the week of November 15. (Rel. 34-63293)
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