Securities and Exchange Commission Suspends Trading in the Securities of Eight 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. 4, 2011 and terminating at 11:59 p.m. EST on Feb. 17, 2011.
The Commission temporarily suspended trading in the securities of these eight 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. 34-63840)
Mark Cahn Named SEC General Counsel
The Securities and Exchange Commission today announced that Mark D. Cahn has been promoted to General Counsel in the SEC's Office of the General Counsel. He will assume his new role when David M. Becker steps down from the position later this month.
Since March 2009, Mr. Cahn has served as Deputy General Counsel for Litigation and Adjudication, and has counseled the Commission on a wide variety of litigation, appellate and enforcement matters and played a key role in regulatory initiatives.
"Over the past two years, Mark has shown a tremendous grasp of securities law as well as incredible judgment on a range of issues," said SEC Chairman Mary L. Schapiro. "He is well-positioned to help the agency evolve and keep pace with the ever-changing markets."
Mr. Cahn said, "It has been a particular honor to work alongside David and the talented and dedicated staff of the General Counsel's office these past two years. It is a privilege to work at the SEC, and I look forward to continuing to serve a Chairman and a Commission so committed to protecting investors."
From 1988 until joining the SEC staff, Mr. Cahn, 49, worked at the law firm of WilmerHale LLP, where he was a partner in the firm's Securities Litigation and Enforcement Practice. Prior to joining WilmerHale, Mr. Cahn clerked for the Honorable John J. Gibbons, U.S. Court of Appeals for the Third Circuit, and for the Honorable Herbert J. Stern, U.S. District Court for the District of New Jersey. He earned his JD in 1986 from Yale Law School, and his BA, summa cum laude, from Tufts University in 1983. (Press Rel. 2011-39)
In the Matter of Robert L. Buckhannon
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 Robert L. Buckhannon. The Order finds that Buckhannon was a managing member of Arcanum Equity Fund, LLC 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 Buckhannon in the civil action entitled Securities and Exchange Commission v. Robert L. Buckhannon, 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 that, among other things, from April 2008 through May 2009, Buckhannon helped raise approximately $34.1 million from 101 investors throughout the U.S. and Canada by promising investors 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 Respondent and the other managing members of the Funds improperly 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, Buckhannon and the other managing members took profit-based payments for themselves, directed payments of millions in alleged "profits" to investors, and that Buckhannon diverted hundreds of thousands of dollars of investor funds to himself and family members.
Based on the above, the Order bars Buckhannon from association with any investment adviser. Buckhannon 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-3151; File No. 3-14228)
In the Matter of Jack C. Smith, Jr.
On Feb. 3, 2011, the Commission issued an Order Instituting Administrative Proceedings Pursuant to Section 15(b) of the Securities Exchange Act of 1934 and Section 203(f) of the Investment Advisers Act of 1940, Making Findings, and Imposing Remedial Sanctions (Order) against Jack C. Smith, Jr. (Smith), a part-owner of Torrey Pines Securities, Inc. (Torrey Pines), a registered broker-dealer. The Order finds that Smith, while president of Torrey Pines, failed reasonably to supervise Dennis Lee Keating II (Keating), another part-owner and registered representative of Torrey Pines. According to the Order, Smith failed reasonably to supervise Keating between August 2006 and November 2008, when Keating conducted an unregistered private securities offering outside the scope of his employment with Torrey Pines, violating Section 15(a) of the Securities Exchange Act of 1934. The Order finds that Smith failed reasonably to supervise Keating in connection with Keating's broker-dealer registration violations because Smith did not establish reasonable policies and procedures to assign responsibility for supervising Keating (causing Keating to supervise himself), failed to develop systems to implement the firm's procedures regarding outside business activities by registered representatives, and failed to develop systems to require supervisors and/or compliance staff to adequately follow-up on outside activities that might signal violations of the firm's prohibition against selling securities outside the authority of Torrey Pines. The Order finds that had such systems been in place, Keating's outside activities that violated the broker-dealer registration provisions of the federal securities laws likely would have been prevented and detected.
Based on the above, the Order suspends Smith for nine months from association in a supervisory capacity with any broker, dealer, or investment adviser and orders Smith to pay $25,000 in civil penalties. Smith 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. (Rels. 34-63834; IA-3152; File No. 3-14229)
In the Matter of Torrey Pines Securities, 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 and Section 203(e) of the Investment Advisers Act of 1940 (Order) against Torrey Pines Securities, Inc. (Torrey Pines), a registered broker-dealer.
The Division of Enforcement (Division) alleges in the Order that between August 2006 and November 2008, Torrey Pines failed reasonably to supervise Dennis Lee Keating II (Keating), a part-owner and registered representative of Torrey Pines, when Keating conducted an unregistered private securities offering outside the scope of his employment with Torrey Pines, violating Section 15(a) of the Securities Exchange Act of 1934. The Division alleges that Torrey Pines did not establish reasonable policies and procedures to assign responsibility for supervising Keating (causing Keating to supervise himself), failed to develop systems to implement the firm's procedures regarding outside business activities by registered representatives, and failed to develop systems to require supervisors and/or compliance staff to adequately follow-up on outside activities that might signal violations of the firm's prohibition against selling securities outside the authority of Torrey Pines. The Division also alleges in the Order that had such systems been in place, Torrey Pines likely would have detected and prevented Keating's outside activities that violated the broker-dealer registration provisions of the federal securities laws.
A hearing will be scheduled before an administrative law judge to determine whether the allegations in the Order are true, to provide Torrey Pines an opportunity to respond to these allegations, and to determine what, if any, remedial action is appropriate in the public interest. The Order directed the Administrative Law Judge to issue an initial decision within 300 days from the date of service of the Order. (Rels. 34-63835; IA-3153; File No. 3-14230)
Commission Orders Hearings on Registration Suspension or Revocation Against Eight 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 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 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. 34-63841; File No. 3-14231)
Court Enters Final Judgments by Consent Against Defendants in New Hampshire Ponzi Scheme Case
Individual Defendants Are Sentenced to Prison in Parallel Criminal Action
The Securities and Exchange Commission announced that on Feb. 2, 2011, the United States District Court for the District of New Hampshire entered final judgments by consent against Scott D. Farah and Donald E. Dodge, and their businesses, Financial Resources Mortgage, Inc. and C L and M, Inc., defendants in a fraud action filed by the Commission in April 2010 alleging a massive Ponzi scheme involving a purported private lending program that defrauded at least $33 million from investors.
The Commission alleged in its complaint that the Ponzi scheme involved raising investor money to fund purported loans to specific real estate construction projects and other businesses. According to the Commission's complaint, Scott Farah and his mortgage brokerage company, Financial Resources Mortgage, Inc. offered investors annual returns of 12% to 20% and falsely represented to investors that invested monies would be segregated and invested in the specific project that the investors had agreed to fund. The complaint alleged that Donald Dodge and his unlicensed loan servicing company, C L and M, Inc., serviced all loans brokered through Scott Farah and Financial Resources Mortgage, Inc. The complaint further alleged that the Defendants did not segregate investor money and used it for a variety of purposes not authorized by the offering documents, including paying returns to earlier investors, paying personal expenses, paying operating expenses of Financial Resources Mortgage, Inc. and C L and M, Inc., and donating money to the Center Harbor Christian Church, a church founded and owned by Scott Farah's father, and of which Scott Farah was treasurer.
Without admitting or denying the allegations in the Commission's complaint, Farah, Dodge, Financial Resources Mortgage, Inc., and C L and M, Inc. consented to final judgments entered by the Court. The judgments against Farah and Financial Resources Mortgage, Inc. permanently enjoined them from future violations of Sections 5 and 17(a) of the Securities Act of 1933 (Securities Act) and Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder. The judgments as to Dodge and C L and M, Inc. permanently enjoined them from future violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.
On January 19, in a parallel criminal proceeding, Scott Farah was sentenced to 15 years in prison and co-defendant Donald Dodge received a 6 year sentence, based on their respective guilty pleas in October 2010 to criminal charges brought in April 2010 by the United States Attorney's Office for the District of New Hampshire. The judge stayed a ruling on whether Farah and Dodge should be ordered to make restitution pending a report from the trustee in a related bankruptcy proceeding. In the criminal action, which was based on the same underlying facts as the Commission's civil complaint, both Farah and Dodge were charged, and pled guilty to, one count of wire fraud, and Farah was also charged andpled guilty to one count of mail fraud.
The United States Bankruptcy Court for the District of New Hampshire appointed a trustee in late 2009 to preside over each of the defendants' assets. In April 2010, the bankruptcy trustee overseeing the defendants' assets sued the Center Harbor Christian Church for recovery of property and fraudulent transfers of funds it allegedly received from the defendants. The bankruptcy proceeding is still pending.
The Commission's action, filed in April 2010, initially named the Center Harbor Christian Church as a relief defendant based on its alleged receipt of investor funds as donations from the defendants. On January 24, the Commission stipulated to a voluntary dismissal from its action of relief defendant Center Harbor Christian Church.
The Commission will also institute a separate administrative proceeding against Scott Farah, in which Farah has consented to be barred from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization and from participating in any offering of a penny stock. [SEC v. Scott D. Farah, Donald E. Dodge, Financial Resources Mortgage, Inc., and C L and M, Inc., as Defendants, and Center Harbor Christian Church, as Relief Defendant, 1:10-CV-00135, USDC, NH; U.S. v. Scott Farah and Donald Dodge, (U.S.D.C., District of New Hampshire) Criminal Action No. 1:10-CR-44-PB-01/02] (LR-21837)
Former TPG Capital, L.P. Associate Found Liable for His Role in Serial Insider Trading Ring
The Securities and Exchange Commission today announced that on Feb. 3, 2011, a federal jury in the Northern District of California found former TPG Capital, L.P. (TPG) private equity associate Vinayak S. Gowrish liable for illegally tipping material, nonpublic information that TPG was in negotiations to acquire three separate publicly traded companies: Sabre Holdings Corp. (Sabre), TXU Corp. (TXU), and Alliance Data Systems Corp. (ADS).
The jury found that Gowrish, a former associate at multi-billion dollar private equity firm TPG, misappropriated material nonpublic information from his employer in connection with TPG's negotiations to acquire Sabre, TXU, and ADS. Gowrish tipped the confidential acquisition information to his long-time friend, Adnan Zaman, a former investment banker at Lazard Frères & Co. LLC. Zaman, in turn, tipped the information to their two friends, Pascal S. Vaghar and Sameer N. Khoury. On the basis of the information provided by Gowrish through Zaman, Vaghar and Khoury then traded Sabre, TXU, and ADS securities, realizing approximately $375,000 in illicit profits. The Commission's complaint alleged that, in exchange for the confidential information, Vaghar provided cash kickbacks to both Gowrish and Zaman. The jury found that Gowrish violated Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder.
Zaman, Vaghar, and Khoury previously consented to the entry of final judgments permanently enjoining them from violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. Zaman and Vaghar were also enjoined from violations of Section 14(e) of the Exchange Act and Rule 14e-3 thereunder. Zaman is currently serving a 26-month federal prison sentence for his role in the scheme. During the remedy phase of the proceeding against Gowrish, the Commission will seek permanent injunctive relief, disgorgement of illicit profits with prejudgment interest, and the imposition of financial penalties.
The Commission's case was litigated by Assistant Chief Litigation Counsel James A. Kidney, and two members of the SEC's Asset Management Unit -- Assistant Director Julie M. Riewe and Senior Counsel Anthony S. Kelly. The team was assisted by paralegal Aaron Fischer. [SEC v. Vinayak S. Gowrish, 09-CV- 5883 (SI) (N.D. Cal.)] (LR-21838)
SEC Obtains Consent Order and Final Judgment as to Defendant Ali Hariri
The SEC announced that the Honorable Jed S. Rakoff, United States District Judge, United States District Court for the Southern District of New York, entered a Consent Order and Final Judgment as to Ali Hariri on Feb. 4, 2011, in the SEC's insider trading case, SEC v. Galleon Management, LP, et al., 09-CV-8811 (SDNY) (JSR). The SEC filed its action on Oct. 16, 2009, against Raj Rajaratnam, Galleon Management, LP, and others, alleging a widespread and repeated insider trading scheme involving hedge funds, industry professionals, and corporate insiders. When the SEC's action was filed, Hariri was Vice President of Broadband Carrier Networking at Atheros Communications, Inc.
The SEC alleged that Hariri tipped co-defendant Ali Far in advance of certain of Atheros's earnings announcements, and that Far and co-defendant CB Lee traded profitably based on that information. In exchange, Far tipped Hariri with inside information on another company. Through trading based on inside information he received from Far, Hariri personally profited by $2,548.91. The SEC charged Hariri, among others, with violations of Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder, and Section 17(a) of the Securities Act of 1933 (Securities Act).
The Consent Order and Final Judgment entered against Hariri: (1) permanently enjoins him from violations of Section 10(b) of the Exchange Act, Exchange Act Rule 10b-5, and Section 17(a) of the Securities Act; (2) orders him liable for disgorgement of ill-gotten gains, together with prejudgment interest, for a total of $2,665.68; and (3) permanently bars him from acting as an officer or director of any issuer that has a class of securities registered pursuant to Section 12 of the Exchange Act or that is required to file reports pursuant to Section 15(d) of the Exchange Act. In a parallel criminal action against him in which Hariri pleaded guilty, United States v. Hariri, 10 CR 00173 (SDNY), Hariri was sentenced to a term of imprisonment of eighteen months, two years supervised release, and ordered to pay a criminal fine of $50,000. The Commission already has obtained full disgorgement of Hariri's downstream tippee profits from Far and Lee, in a separate judgment entered Jan. 29, 2010, against Far and Lee. [SEC v. Galleon Management, LP, et al., Civil Action No. 09-CV-8811 (SDNY) (JSR)] (LR-21839)
Immediate Effectiveness of Proposed Rule Change
Proposed rule changes filed by the Stock Clearing Corporation of Philadelphia (SR-SCCP-2011-001) and the Boston Stock Exchange Clearing Corporation (SR-BSECC-2011-001) regarding a stockholders' agreement between SCCP's and BSECC's parent corporation, The NASDAQ OMX Group and Investor AB, have become effective pursuant to Section 19(b)(3)(A)(iii) of the Securities Exchange Act of 1934 and Rule 19b-4(f)(6) thereunder. Publication is expected in the Federal Register during the week of February 7. (Rel. 34-63830)
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