Ethiopis Tafara to Testify
Ethiopis Tafara, Director of the Office of International Affairs, U.S. Securities and Exchange Commission, will testify before a joint hearing of the Financial Services Subcommittee on Domestic and International Monetary Policy, Trade and Technology and the Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises. Mr. Tafara's testimony, which concerns foreign government investment in the U.S. economy and financial sector, will be delivered on Wednesday, March 5, 2008, at 2:30 p.m., in Room 2128 of the Rayburn House Office Building.
Notice of Proposed Distribution Plan and Opportunity for Comment in the Matter of Founding Partners Capital Management Company and William Gunlicks
On March 3, the Commission gave notice that, pursuant to Rule 1103 of the Commission's Rules on Fair Fund and Disgorgement Plans, the Division of Enforcement has submitted to the Commission a proposed Distribution Plan for the distribution of monies placed into a disgorgement fund in the Matter of Founding Partners Capital Management Company and William Gunlicks. The proposed Distribution Plan provides for the distribution of the $182,244 in disgorgement and prejudgment interest paid in this matter to investors injured as a result of Founding Partners Capital Management Company and Gunlick's violations.
Any interested persons may print a copy of the proposed Distribution Plan from the Commission's public website, http://www.sec.gov. Interested parties may also obtain a written copy of the proposed Distribution Plan by submitting a written request to Chad Alan Earnst, United States Securities and Exchange Commission, 801 Brickell Avenue, Suite 1800, Miami, Florida 33131. All persons desiring to comment on the Distribution Plan may submit their comments, in writing, by no later than April 2, 2008, to the Office of the Secretary, U.S. Securities and Exchange Commission, 100 F Street, N.E., Washington, DC 20549-1090, or by using the Commission's Internet comment form (http://www.sec.gov/litigation/admin.shtml), or by sending an e-mail to firstname.lastname@example.org. Please include "Administrative Proceeding File Number 3-12896" on the subject line of any e-mail. Comments received will be publicly available. Persons should submit only information that they wish to make publicly available.
For more information see Rels. SA-8866, IA-2680, and File No. 3-12896. (Rel. 34-57423; File No. 3-12896)
Commission Sustains Disciplinary Action Against Robert E. Strong
The Commission has sustained NASD disciplinary action against Robert E. Strong of New York, New York, former chief compliance officer of Jesup & Lamont Securities Corp. (J&L), an NASD member. The Commission also sustained NASD's imposition of a total of $10,000 in fines for Strong's misconduct.
The Commission upheld NASD findings that Strong failed to supervise a J&L research analyst, failed to ensure that research reports issued by J&L contained the disclosures required by NASD rules, and failed to file a report required by NASD within the time required. In approving NASD's sanctions, the Commission observed that Strong's "supervisory failures reflect a troubling inattention to the responsibilities given to him" by J&L's management. According to the Commission, "the sanctions imposed by NASD serve the public interest by encouraging future compliance with the rules at issue here, by Strong and by others in the industry who have been given similar responsibilities." (Rel. 34-57426; File No. 3-12599)
Commission Charges Stanley Manne With Insider Trading in the Stock of Valley Forge Scientific, Inc.
The Commission announced that, on March 4, it filed a civil action in the United States District Court for the Eastern District of Pennsylvania against Stanley Manne, of Aventura, Florida, for engaging in unlawful insider trading in the securities of Valley Forge Scientific, Inc. (Valley Forge), which was located in Oaks, Pennsylvania. The complaint alleges that the defendant, a retired business owner, purchased securities of Valley Forge on the basis of material nonpublic information concerning a merger between Valley Forge and Synergetics, Inc. Without admitting or denying the allegations of the complaint, Manne has consented to the entry of a final judgment permanently enjoining him from engaging in the violations set forth below, and ordering him to pay disgorgement of $85,601, plus prejudgment interest of $13,315, and a civil penalty of $85,601.
The Commission's complaint alleges that Synergetics, a privately held corporation, developed and manufactured microsurgical instruments and devices. Valley Forge, now known as Synergetics USA, Inc., manufactured electrosurgical equipment and instrumentation. Valley Forge's common stock was traded on the Boston Stock Exchange and quoted on the NASDAQ SmallCap Market until the completion of the merger with Synergetics. On May 3, 2005, Valley Forge and Synergetics jointly announced an agreement to merge the two companies. On that day, Valley Forge common stock closed at $2.30 per share, an increase of 23 percent over the previous day.
The complaint alleges that Valley Forge and Synergetics began discussions concerning a possible merger in July 2003. In May 2004, a Valley Forge director who later became Valley Forge's chief operating officer (hereinafter Chief Operating Officer), became the principal negotiator for Valley Forge in connection with the merger discussions. Manne and the Chief Operating Officer have had a close personal and professional relationship for more than 30 years and Manne knew, during the relevant time period, that the Chief Operating Officer was a Valley Forge director and that he had access to confidential information about the merger negotiations.
The complaint also alleges that, in February 2005, the Chief Operating Officer resigned from Valley Forge's board of directors to become the company's chief operating officer, and asked Manne if he would be interested in replacing him on Valley Forge's board. He told Manne that Valley Forge was involved in discussions with several potential sale or merger partners, including Synergetics, and that, as a director, Manne would be involved in these matters. Manne agreed to keep this information confidential and not to trade on it. Nevertheless, between February 14, 2005 and May 3, 2005, in breach of a duty of trust and confidence he owed to the Chief Operating Officer, Manne misappropriated material nonpublic information concerning the merger negotiations for his own use, and purchased 105,680 shares of Valley Forge common stock in 45 trades on 34 separate days. Although Manne did not sell his shares immediately after the merger announcement, as a result of his unlawful trading Manne realized potential profits of $85,601.
The Commission's complaint alleges that by his conduct, Manne violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and seeks a permanent injunction, disgorgement together with prejudgment interest, and a civil penalty against Manne.
The Commission acknowledges the assistance of the National Association of Securities Dealers (now known as the Financial Industry Regulatory Authority) with respect to this matter. [SEC v. Stanley Manne, Civil Action No. 08-CV-1068 (E.D.Pa.)]( LR-20474)
Hedge Fund Adviser and Principals Charged in $60 Million Investment Fraud
The Commission today announced the filing of an enforcement action against a Salt Lake City investment adviser and three of its principals for making undisclosed subprime and other high-risk investments which resulted in the near total asset losses of two hedge funds managed by the adviser. The SEC charged Thompson Consulting, Inc., Kyle Thompson, David Condie and Sherman Warner with violations of the antifraud provisions of the securities laws by engaging in much riskier trading strategies than those described to investors, several of whom were seniors. The Commission alleges that Thompson, Condie and Warner managed the hedge funds' investment strategy and also made sales presentations to potential investors in which they emphasized the safety of Thompson Consulting's investment strategy. The Commission's complaint, filed in the United States District Court for the District of Utah, also alleges that Thompson Consulting's deviations from its stated investment policy resulted in substantial losses to both the hedge funds and an individual client. Among those departures from its stated strategy were failed investments in options on the stock of a subprime lender. The complaint further alleges that the defendants improperly transferred money from the hedge funds to the account they managed for the individual client to make up for the individual's losses.
The Commission's complaint alleges that from March through August 2007, Thompson Consulting, in an attempt to attain promised returns of 3% a month, embarked on progressively riskier trading strategies in an attempt to increase returns without disclosing the change in strategy. The Commission alleges that in early March 2007, Thompson Consulting wrote options on the stock of New Century Financial Corp., a subprime lender, for the accounts of the hedge funds, sustaining substantial losses when the price of the underlying stock collapsed later that month. According to the Commission's complaint, the same investment had been made on behalf of one of Thompson Consulting's individual investors. In order to make up for the losses suffered by that investor, Thompson Consulting allegedly transferred $3 million improperly from one of the hedge funds to the individual's account.
In an effort to recoup earlier losses by the hedge funds, the Commission alleges, in July and August 2007, Thompson Consulting invested virtually all the hedge funds' assets in unhedged options on the VIX, the CBOE's volatility index. Virtually all these assets were lost when the securities markets dropped sharply in mid August. According to the Commission's complaint, from July 31 to August 17, 2007, the net asset value of the hedge funds fell from approximately $54 million to approximately $200,000.
The Complaint seeks to enjoin Thompson Consulting, Thompson, Condie and Warner from future violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Sections 206(1) and (2) of the Investment Advisers Act of 1940; payment of disgorgement and prejudgment interest and the imposition of civil penalties. Finally, the Complaint seeks disgorgement from several relief defendants. [SEC v. Thompson Consulting, Inc. et al., Case Number 2:08-CV-00171 (Judge Bruce S. Jenkins)(D.Ut.)] (LR-20475)
Proposed Rule Changes
National Securities Clearing Corporation filed a proposed rule change (SR-NSCC-2007-15) under Section 19(b)(2) of the Securities Exchange Act that would establish a policy statement regarding the admission of entities that are organized in a foreign country and are not subject to U.S. federal or state regulation as members of NSCC. Publication is expected in the Federal Register during the week of March 3. (Rel. 34-57391)
The Depository Trust Company filed a proposed rule change (SR-DTC-2007-16), under Section 19(b)(2) of the Securities Exchange Act regarding a policy statement to permit the admission of entities that are organized in a foreign country and are not subject to U.S. federal or state regulation to become direct DTC participants. Publication is expected in the Federal Register during the week of March 3. (Rel. 34-57392)
Approval of Proposed Rule Change
The Commission granted approval to a proposed rule change (SR-CBOE-2007-96), as modified by Amendment No. 1 thereto, submitted by the Chicago Board Options Exchange, Incorporated, pursuant to Rule 19b-4 under the Securities Exchange Act of 1934, to amend the quarterly option series pilot program to permit the listing of additional series. Publication is expected in the Federal Register during the week of March 3. (Rel. 34-57410)
Immediate Effectiveness of Proposed Rule Change
A proposed rule change (SR-CBOE-2008-25) filed by the Chicago Board Options Exchange, Incorporated relating to the temporary membership status access 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 March 3. (Rel. 34-57411)
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