SEC, NASAA and FINRA Announce New Steps to Help Protect Senior Investors
The Securities and Exchange Commission (SEC), the North American Securities Administrators Association (NASAA), and the Financial Industry Regulatory Authority (FINRA) today announced a new initiative as part of securities regulators' efforts to protect senior investors. The goal of the initiative is to identify effective practices used by financial services firms in dealing with senior investors, and to provide information about these practices publicly.
As regulators have increasingly focused on protecting older investors, many investment advisers and broker-dealer firms are evaluating their current practices in serving seniors. SEC staff, NASAA, and FINRA will solicit input from all interested parties in order to identify strong supervisory, compliance and other practices used by financial services firms serving seniors in the following areas: marketing and advertising to seniors; account opening; product and account review; ongoing review of the relationship and appropriateness of products; discerning and meeting the changing needs of customers as they age; surveillance and compliance reviews; and training for firm employees. The findings will be published so all firms can improve their service to older investors.
SEC Chairman Christopher Cox said, "It's important to maximize the cutting-edge practices being developed by financial services firms to ensure that America's senior investors are being protected and well-served by brokers, investment advisers, and others in the securities industry."
NASAA President Karen Tyler said, "Strong regulation and heightened investor awareness, combined with effective industry compliance and supervisory systems, are necessary elements in the fight against senior investment fraud. Through this initiative we intend to spotlight successful industry practices from which others may benefit."
FINRA Chief Executive Officer Mary Schapiro said, "Our senior population is growing at an unprecedented rate, making it critical that the securities industry and its regulators focus on the needs of these investors. This initiative will reinforce and expand recent efforts by FINRA, the SEC and NASAA to make certain the entire industry serves the needs of senior customers."
It is not expected that there will be a "one-size-fits all" approach to effective practices in these areas, and there may be many different practices that are effective. The goal of the initiative is not to impose new regulatory requirements, but to help firms better meet their current obligations to, as well as more generally to serve, their senior customers.
This effort is one part of the multifaceted coordinated national initiative to protect seniors from investment fraud and sales of unsuitable securities that was announced by SEC Chairman Christopher Cox and NASAA and FINRA (formerly the NASD and NYSE) in May 2006. The initiative has several components, including targeted examinations, enforcement of the securities laws in cases of fraud against seniors, and active investor education and outreach.
Since the start of this initiative, securities regulators have brought numerous enforcement actions against those who would prey on senior investors, initiated and completed a series of examinations of securities firms that offered "free lunch" sales seminars targeting seniors (report available at http://www.sec.gov/spotlight/seniors/freelunchreport.pdf), and sponsored numerous programs and events across the country to educate older investors on how to invest wisely and avoid costly mistakes. (Press Rel. 2008-16)
In the Matter of Mitchell S. Drucker, Esq.
On February 7, the Commission issued an Order Instituting Public Administrative Proceedings and Imposing Temporary Suspension Pursuant to Rule 102(e)(3) of the Commission's Rules of Practice (Order) against Mithcell S. Drucker. The Order finds that a court of competent jurisdiction has permanently enjoined Drucker him from further violations of the federal securities laws.
Based on the above, the Order temporarily suspends Drucker from appearing or practicing before the Commission. If Drucker does not petition to lift that suspension within thirty days after service of the Order, the suspension will become permanent pursuant to Rule 102(e)(3)(ii) of the Commission's Rules of Practice. Rel. 34-57292; File No. 3-12951)
SEC Alleges "Pump and Dump" Market Manipulation by Strategic Management & Opportunity Corporation, CEO Robert Pratt, and Promoter Jeffrey Brommer
The Commission announced that it filed a complaint in the U.S. District Court for the Western District of Washington against Strategic Management & Opportunity Corporation (SMPP), Robert J. Pratt (Pratt), and Jeffrey A. Brommer (Brommer) on Feb. 6, 2008. Pratt, who resides in Lynden, Washington, is the chairman and CEO of SMPP. Brommer, who resides in Jamestown, North Carolina, provides investor relations services.
The complaint alleges that from February to August 2004, SMPP issued a series of materially false and misleading press releases concerning the market readiness of SMPP's kiosk systems and its capital raising efforts. According to the complaint, those misrepresentations included touting a series of bogus funding agreements claiming SMPP would distribute 50 million restricted shares to four entities in exchange for $41.8 million. The complaint alleges that SMPP did not have a market-ready product and had received a mere $1.25 million of the $41.8 million capital touted in the press releases. According to the complaint, these misrepresentations drove up SMPP's stock price from $.10 per share on February 2 to a high of $4.50 on June 10. The complaint also alleges that the distribution of those restricted shares significantly increased the total number of outstanding shares, enabling Pratt to sell much more stock than he otherwise would have been permitted under the securities regulations. The complaint alleges that Pratt sold over 320,000 shares into the artificially-inflated market for a total profit of $628,947. The complaint also alleges that Brommer, who was hired to provide investor relations services for SMPP, made misleading statements vouching for SMPP and Pratt. The complaint alleges that Brommer had no independent basis in vouching for SMPP, but rather had a significant, undisclosed financial motive for his support of SMPP - his own receipt of 50,000 shares as compensation. The complaint alleges that Brommer profited nearly $25,000 by selling SMPP shares during this time.
The complaint alleges that SMPP, Pratt, and Brommer violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and that Pratt and SMPP violated of Section 5(a) and 5(c) of the Securities Act of 1933. The Commission seeks permanent injunctions against each defendant, and disgorgement, prejudgment interest, civil penalties and penny stock bars against Pratt and Brommer, and an officer and director bar against Pratt.
Brommer, without admitting or denying the allegations in the Commission's complaint, consented to the entry of a Final Judgment that would order Brommer to pay $24,916 in disgorgement and $1,084 in prejudgment interest, together with a civil money penalty in the amount of $40,000. The proposed Final Judgment also will enjoin him permanently from violating Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder, and bar him from participating in an offering of penny stock. The settlement is subject to the Court's approval. [SEC v. Strategic Management & Opportunity Corporation; Robert J. Pratt, and Jeffrey A. Brommer, Civil Action No. C08-0197JLR (W.D. Wash.)] (LR-20451)
INVESTMENT COMPANY ACT RELEASES
Pioneer Bond Fund, et al.
A notice has been issued giving interested persons until March 3, 2008, to request a hearing on an application filed by Pioneer Bond Fund, et al. for an order under Section 6(c) of the Investment Company Act for an exemption from Sections 18(f) and 21(b) of the Act, under Section 12(d)(1)(J) of the Act for an exemption from Section 12(d)(1) of the Act, under Sections 6(c) and 17(b) of the Act for an exemption from Sections 17(a)(1) and 17(a)(3) of the Act, and under Section 17(d) of the Act and Rule 17d-1 under the Act to permit certain joint transactions. The order would permit certain registered open-end management investment companies to participate in a joint lending and borrowing facility. (Rel. IC-28144 - February 5)
Amendment to Proposed Rule Change
The Depository Trust Company filed Amendment No. 1 to the proposed rule change (SR-DTC-2007-11) under Section 19(b)(1) of the Exchange Act that would amend its Operational Arrangements as it applies to structured securities. Publication is expected in the Federal Register during the week of February 11. (Rel. 34-57283)
Proposed Rule Change
The NASDAQ Stock Market filed a proposed rule change (SR-NASDAQ-2007-090) under Rule 19b-4, as modified by Amendment No. 1 thereto, to accept financial statements prepared in accordance with International Financial Reporting Standards, as issued by the International Accounting Standards Board, for certain foreign private issuers. Publication is expected in the Federal Register during the week of February 11. (Rel. 34-57290)
Immediate Effectiveness of Proposed Rule Changes
A proposed rule change filed by NYSE Arca to amend rules pertaining to the Terms of Index Option Contracts (SR-NYSEArca-2008-16) 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 February 11. (Rel. 34-57284)
A proposed rule change (SR-CBOE-2008-10) filed by the Chicago Board Options Exchange relating to Exchange membership fees 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 February 11. (Rel. 34-57285)
Pursuant to Rule 19b-4 under the Securities Exchange Act of 1934, the American Stock Exchange filed a proposed rule change (SR-Amex-2008-06), which became effective upon filing, amending Amex Rule 3-AEMI. Publication is expected in the Federal Register during the week of February 11. (Rel. 34-57289)
Approval of Proposed Rule Changes
The Commission approved a proposed rule change, as amended by Amendment No.1 thereto (SR-CBOE-2007-122), submitted by the Chicago Board Options Exchange amending its obvious error rule for options on indices, ETFs, and HOLDRS. Publication is expected in the Federal Register during the week of February 11. (Rel. 34-57286)
The Commission approved a proposed rule change (SR-NYSE-2007-113) submitted under Rule 19b-4 of the Securities Exchange Act of 1934 by the New York Stock Exchange to amend Annual Fees applicable to groups of Real Estate Investment Trusts under common external management. Publication is expected in the Federal Register during the week of February 11. (Rel. 34-57291)
SECURITIES ACT REGISTRATIONS
RECENT 8K FILINGS