Securities and Exchange Commission Suspends Trading in the Securities of Two 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. EST on Feb. 3, 2011, and terminating at 11:59 p.m. EST on Feb. 16, 2011.
The Commission temporarily suspended trading in the securities of these two 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. 34-63828)
Closed Meeting - Thursday, February 10, 2011 - 2:00 p.m.
The subject matter of the Closed Meeting scheduled for Thursday, Feb. 10, 2011, will be: institution and settlement of injunctive actions; and institution and settlement of administrative 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.
In the Matter of Roger August Kimmel, Jr., Esq.
On Feb. 2, 2011, the Commission issued an Order Instituting Administrative Proceedings Pursuant to Rule 102(e) of the Commission's Rules of Practice, Making Findings and Imposing Remedial Sanctions (Order) against Roger August Kimmel, Jr., Esq. (Kimmel). The Order finds that from at least March 2008 through July 2008, Kimmel acted as an attorney for Petroleum Unlimited, LLC, and Petroleum Unlimited II, LLC (collectively Petroleum Unlimited). In connection with the offer and sale of Petroleum Unlimited's securities, Kimmel misused investor funds, misrepresented the company's use of offering proceeds and the annual returns investors could earn by investing in Petroleum Unlimited, and failed to disclose exorbitant sales commissions.
On Jan. 12, 2011, a final judgment was entered against Kimmel, permanently enjoining him from future violations of Section 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. [SEC v. Roger August Kimmel, Jr., et al., Civil Action No. 9:11-CV-80038 (S.D. Fla.)] (LR-21808).
Based on the above, the Order suspends Kimmel from appearing or practicing before the Commission as an attorney. Kimmel consented to the issuance of the Order without admitting or denying any of the findings therein, except as to the entry of the judgment. (Rel. 34-63824; File No. 3-14220)
In the Matter of Jack W. Luna
On Feb. 2, 2011, the Commission issued an Order Instituting Cease-and-Desist Proceedings Pursuant to Section 203(k) of the Investment Advisers Act of 1940, Making Findings, and Imposing a Cease-and-Desist Order (Order) against Jack W. Luna.
From 2007 to 2009, Luna was an advisory representative of Titan Wealth Management, LLC (Titan), a Commission-registered investment adviser. On Aug. 25, 2009, the Commission filed an emergency action against defendants Titan, Point West Partners, LLC, and Thomas Lester Irby to halt a fraudulent scheme involving the purported offer and sale of European Mid-Term Notes (MTNs).
The Order finds that as part of Titan's scheme, Luna recommended an investment in the MTNs to Titan's advisory clients as low-risk without conducting any independent due diligence. Moreover, Luna continued to recommend that clients purchase the MTNs after prior clients experienced delays in receiving returns of principal and interest on their investment. The Commission alleged in its civil Complaint that Titan and Irby never used any client funds to purchase MTNs, but instead misappropriated or misapplied millions of dollars. Luna was not a party in this lawsuit.
Based on the above, the Order requires Luna to cease and desist from committing or causing any violations and any future violation of Section 206(2) of the Advisers Act. Luna consented to the issuance of the Order without admitting or denying any of the findings in the Order. (Rel. IA-3148; File No. 3-14221)
In the Matter of Gustav George Bujkovsky
On Feb. 2, 2011, the Commission issued an Order Instituting Administrative Proceedings Pursuant to Rule 102(e) of the Commission's Rules of Practice, Making Findings, and Imposing Remedial Sanctions (Order) against Gustav George Bujkovsky. The Order finds that on Nov. 22, 2010, a judgment was entered against Gustav George Bujkovsky (Bujkovsky), permanently enjoining him from future 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 thereunder, in the civil action entitled Securities and Exchange Commission v. Gustav George Bujkovsky, et al., Civil Action Number 10-CV-1965 BEN (JMA) in the United States District Court for the Southern District of California.
The Order further finds that the Commission's Complaint alleged that between April and August 2009, Bujkovsky represented as clients MAK 1 Enterprises Group, LLC (MAK 1) and its principals, Mohit A. Khanna and Sharanjit K. Khanna, who sold MAK 1's unregistered securities. Investors in the $35 million MAK 1 scheme were promised exorbitantly high returns through guaranteed investments such as foreign currency trading. MAK 1 was a Ponzi scheme and was halted by an emergency action filed by the Commission in federal court in San Diego in August 2009. In that action, SEC v. Mohit A. Khanna, et al., Case No. 09CV1784BEN (filed Aug.17, 2009), the Commission charged MAK 1 and the Khannas with violations of the federal securities laws. The Commission's Complaint alleged that Bujkovsky, despite having notice that MAK 1 was conducting an unregistered and likely fraudulent securities offering, made material misrepresentations and failed to disclose material facts to some MAK 1 investors. The Commission further alleged that Bujkovsky misrepresented that MAK 1 was engaged in foreign currency trading and that his own clients invested in MAK 1 and had received the promised high returns, and that the MAK 1 investment was insured and had other downside risk protection. The Complaint further alleged that after Mohit Khanna told Bujkovsky on July 9, 2009, that MAK 1 did not engage in foreign currency trading and was a fraud, Bujkovsky lulled certain investors by falsely representing that their money would be returned after problems were resolved with so-called "intermediaries" including, purportedly, European banks. The Complaint alleged that during the period of Bujkovsky's representation, MAK 1 raised more than $3.3 million from investors, over $1.9 million of which was returned to earlier investors as interest payments or return of principal, and over $1.5 million of which were sent to Bujkovsky's client trust account from MAK 1 or the Khannas. The Commission alleged that by transferring these funds through his client trust account and the account of a sham corporation he created, Bujkovsky helped the Khannas misappropriate about $1.3 million investor funds for their own use and that Bujkovsky retained over $459,000 of investor funds, about half of which he used for his personal expenses or paid to his wife, Betty D. Hansen.
Based on the above, the Order suspends Bujkovsky from appearing or practicing before the Commission as an attorney. Bujkovsky consented to the issuance of the Order without admitting or denying any of the findings in the Order except as to the Commission's jurisdiction over him, the subject matter of these proceedings, and the entry of the judgment in the civil injunctive action. (Rel. 34-63826; File No. 3-14222)
In the Matter of AXA Rosenberg Group LLC, AXA Rosenberg Investment Management LLC, and Barr Rosenberg Research Center LLC
On Feb. 3, 2011, the Commission issued an Order Instituting Administrative and Cease-and-Desist Proceedings, Pursuant to Section 8A of the Securities Act of 1933, Section 9(b) of the Investment Company Act of 1940, and Sections 203(e), 203(f), and 203(k) of the Investment Advisers Act of 1940, Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order (Order) against AXA Rosenberg Group LLC (ARG), AXA Rosenberg Investment Management LLC (ARIM), and Barr Rosenberg Research Center LLC (BRRC) (collectively, Respondents).
The Order finds that Respondents concealed a significant error in the computer code of the quantitative investment model that they use to manage client assets in violation of the federal securities laws. The error caused $216 million in losses. BRRC develops the computer code for the quantitative investment model, and ARIM uses the model to manage client portfolios. In June 2009, senior management at BRRC and ARG learned of a material error in the model's code. The error, which was introduced into the model in April 2007, disabled one of the key components in the model for managing risk. The Order finds that, instead of disclosing and fixing the error immediately, a senior ARG and BRRC official directed others to keep quiet about the error and declined to fix the error at that time. While the error was eventually fixed for all portfolios, knowledge of the error was kept from ARG's Global CEO until November 2009. Following this, ARG conducted an internal investigation. In late March 2010, ARG disclosed the error to Commission examination staff after being informed of an impending Commission examination of ARIM and BRRC. ARG disclosed the error to clients on April 15, 2010.
The Order further finds that ARG, BRRC, and ARIM made material misrepresentations and omissions concerning the error to ARIM's clients. ARG, BRRC, and ARIM failed to disclose the error and its impact on client performance, attributed the model's underperformance to market volatility rather than the error, and misrepresented the model's ability to control risks. In addition, the Order finds that BRRC did not have reasonable compliance procedures in place to ensure that the model would assess certain risk factors as intended. The coding process for the model represented a serious compliance risk for BRRC and its clients because accurate coding is required for the model to function properly and as represented to clients.
Based on the above, the Order finds that ARG willfully violated anti-fraud provisions of the Securities Act of 1933, Sections 17(a)(2) and (3); ARIM willfully violated an anti-fraud provision of the Investment Advisers Act of 1940 ("Advisers Act"), Section 206(2); and BRRC willfully violated anti-fraud and compliance provisions of the Advisers Act, Sections 206(2) and 206(4) and Rule 206(4)-7 thereunder. The Order requires ARG, ARIM and BRRC to cease and desist from committing or causing any violations and any future violations of these provisions; censures them; and orders them jointly and severally to pay a $25 million penalty. The Order also requires ARG, ARIM and BRRC to comply with certain undertakings, including a payment of approximately $216 million to redress harm from the coding error to the clients of ARIM and other ARG-affiliated advisers. The undertakings also include reorganization of the firms' compliance functions and the hiring of an independent compliance consultant to conduct a comprehensive review of the firms' overall supervisory and compliance policies and procedures and specifically the disclosure, recordkeeping and reporting processes for the quantitative investment model. ARG, ARIM, and BRRC consented to the issuance of the Order without admitting or denying any of the findings in the proceedings. (Rels. 33-9181; IA-3149; IC-29574; File No. 3-14224).
Commission Orders Hearings on Registration Suspension or Revocation Against Three Companies for Failure to Make Required Periodic Filings
In conjunction with today's trading suspension, the Commission also instituted public administrative proceedings to determine whether to revoke or suspend for a period not exceeding twelve months the registration of each class of the securities of three companies for failure to make required periodic filings with the Commission:
In this Order, the Division of Enforcement (Division) alleges that the three 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 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 or 13a-16 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 this proceeding issue an initial decision not later than 120 days from the date of service of the order instituting proceedings. (Rel. 34-63827; File No. 3-14223)
In the Matter of TD Ameritrade, Inc.
On Feb. 3, 2011, 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 TD Ameritrade, Inc. (TD Ameritrade), a broker-dealer registered with the Commission and based in Omaha, Nebraska.
The Order finds that, from approximately January 18, 2007 through Sept. 16, 2008, TD Ameritrade failed reasonably to supervise its registered representatives with a view to preventing their violations of Section 17(a)(2) of the Securities Act of 1933 (Securities Act) in connection with their offer and sale of shares in the Reserve Yield Plus mutual fund (Fund) within the meaning of Section 15(b)(4)(E) of the Securities Exchange Act of 1934. The Order finds that TD Ameritrade's representatives at times mischaracterized the Fund as a money market fund, as safe as cash, or as an investment with guaranteed liquidity, and other times failed to disclose the nature or risks of the Fund. As a result of these sales practices, the Order finds that the representatives violated Section 17(a)(2) of the Securities Act. The Order further finds that TD Ameritrade failed to establish policies and procedures and a system to implement the procedures which would reasonably be expected to prevent and detect such violative conduct by its representatives in the offer and sale of the Fund.
Based on the above, the Commission's Order censures TD Ameritrade. Pursuant to the Order, TD Ameritrade voluntarily undertakes to distribute to certain of its current and former customers $0.012 for each share of the Fund still held by such customers within thirty days after issuance of the Order. TD Ameritrade consented to the issuance of the Order without admitting or denying its findings. (Rel. 34-63829; File No. 3-14225)
In the Matter of David E. Watson, CPA
On Feb. 3, 2011, the Commission issued an Order Instituting Administrative Proceedings Pursuant to Rule 102(e) of the Commission Rules of Practice, Making Findings and Imposing Remedial Sanctions (Order) against David E. Watson, CPA, (Watson). The Order finds that Watson, while executive vice president of operations and corporate development and strategy of American Italian Pasta Company (AIPC) engaged in a fraudulent scheme that hid from the investing public the true financial state of AIPC by filing materially false and misleading statements in the company's annual reports on Forms 10-K, quarterly reports on Forms 10-Q, and current reports on Forms 8-K for AIPC's fiscal years 2002, 2003, and 2004.
Based on the above, the Order suspends Watson from appearing or practicing before the Commission as an accountant; gives Watson the right to request reinstatement after five years and sets forth the requirements for consideration of such application for reinstatement. Watson 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. 34-63833; AAE Rel. 3240; File No. 3-14226)
In the Matter of Terry D. Rawstern
On Feb. 3, 2011, the Commission issued an Order Instituting Administrative Proceedings Pursuant to Section 203(f) of the Investment Advisers Act of 1940, Making Findings, and Imposing Remedial Sanctions (Order) against Terry D. Rawstern. The Order finds that Rawstern was a managing member of Arcanum Equity Fund, LLC, a hedge fund, and Vestium Management Group, LLC, an unregistered investment adviser. The Order further finds that on Jan. 13, 2011, the United States District Court for the Middle District of Florida entered a final judgment by consent against Rawstern in the civil action entitled Securities and Exchange Commission v. Terry D. Rawstern, et al. Case No. CV-10-2859-JDW-MAP, permanently enjoining him from future violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Sections 206(1), 206(2) and 206(4) of the Advisers Act and Rule 206-4(8) thereunder.
The Order finds that the Commission's complaint alleged, among other things, that from April 2008 through May 2009, Rawstern helped raise approximately $34.1 million from 101 investors throughout the U.S. and Canada by promising investors that Arcanum Equity Fund, LLC and Vestium Equity Fund, LLC (together, the "Funds") would generate substantial returns and that their money would be used only for conservative investments in high-grade debt instruments and, in some cases, physical commodities transactions that involved "pre-determined exit buyers." The complaint also alleged that Rawstern and the other managing members of the Funds used a substantial amount of the funds raised for high-risk investments and loans that were not in accordance with these stated purposes. The complaint further alleged that, despite having incurred net investment losses of at least $8.1 million, Rawstern and the other managing members directed payments of millions in alleged "profits" to investors and that Rawstern and the other managing member took over $1 million in supposed profit sharing compensation and salaries.
Based on the above, the Order bars Rawstern from association with any investment adviser. Rawstern consented to the Commission's Order without admitting or denying any of the findings therein, except as to the entry of the judgment. (Rel. IA-3150; File No. 3-14227)
SEC Brings Expert Network Insider Trading Charges Passed Company Secrets to Hedge Funds and Others
On Feb. 3, 2011, the Securities and Exchange Commission filed a civil injunctive action in the United States District Court for the Southern District of New York, charging two expert network employees and four consultants with insider trading for illegally tipping hedge funds and other investors to generate nearly $6 million in illicit trading profits and losses avoided. The charges stem from the SEC's ongoing investigation into the activities of expert networks that purport to provide professional investment research to their clients.
According to the SEC's complaint, PGR consultants Mark Anthony Longoria, Daniel L. DeVore, Winifred Jiau and Walter Shimoon obtained material, non-public confidential information about quarterly earnings and performance data and shared that information with hedge funds and other clients of PGR who traded on the inside information. PGR employees Bob Nguyen and James Fleishman acted as conduits by receiving inside information from PGR consultants and passing that information directly to PGR clients.
The SEC's complaint alleges that:
The SEC's complaint charges each of the defendants with violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and, additionally, charges Fleishman, Nguyen and Jiau with aiding and abetting others' violations of Section 10(b) of the Exchange Act and SEC Rule 10b-5. The complaint also charges Longoria and DeVore with violations of Section 17(a) of the Securities Act of 1933. The complaint seeks a final judgment permanently enjoining the defendants from future violations of the above provisions of the federal securities laws, ordering them to disgorge their ill-gotten gains plus prejudgment interest, and ordering them to pay financial penalties. The complaint also seeks to permanently prohibit Longoria, Shimoon and DeVore from acting as an officer or director of any registered public company. [SEC v. Mark Anthony Longoria, Daniel L. DeVore, James Fleishman, Bob Nguyen, Winifred Jiau, and Walter Shimoon, Civil Action No. 11-CV- 0753 (SDNY)] (LR-21836)
INVESTMENT COMPANY ACT RELEASES
Notice of Applications for Deregistration under the Investment Company Act
For the month of January 2011, a notice has been issued giving interested persons until Feb. 22, 2011, to request a hearing on any of the following applications for an order under Section 8(f) of the Investment Company Act declaring that the applicant has ceased to be an investment company:
(Rel. IC-29573 - January 28)
Approval of Proposed Rule Changes
The Commission approved a proposed rule change (SR-FINRA-2010-052) submitted by the Financial Industry Regulatory Authority under Rule 19b-4 of the Securities Exchange Act of 1934 adopting rules regarding books and records in the Consolidated FINRA Rulebook. Publication is expected in the Federal Register during the week of February 7. (Rel. 34-63784)
The Commission approved a proposed rule change, as modified by Amendment No. 1, (SR-CBOE-2010-106) submitted by the Chicago Board Options Exchange under Rule 19b-4 of the Securities Exchange Act of 1934 amending margin requirements for credit options. Publication is expected in the Federal Register during the week of February 7. (Rel. 34-63819)
Proposed Rule Change
The NASDAQ Stock Market filed a proposed rule change (SR-NASDAQ-2011-012) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 to modify NASDAQ Options Market Rules Chapter VII, various sections, dealing with market maker obligations. Publication is expected in the Federal Register during the week of February 7. (Rel. 34-63815)
SECURITIES ACT REGISTRATIONS
RECENT 8K FILINGS