Statement of SEC Division of Trading and Markets Regarding the Bear Stearns Companies
On March 14, the Securities and Exchange Commission's Division of Trading and Markets issued the following statement regarding The Bear Stearns Companies:
"The decision by the Federal Reserve Bank of New York to provide The Bear Stearns Companies temporary funding through J.P. Morgan Chase & Co. today followed a significant deterioration in Bear Stearns' liquidity on Thursday. The Division of Trading and Markets has monitored both the capital and the liquidity of the firm on a daily basis in recent weeks. The purpose in doing so on a firm-wide basis has been to consider all potential impacts on the financial health of the two major U.S. registered broker-dealers and the other regulated entities in the Bear Stearns consolidated group.
"As of its most recent capital calculation as of the end of February 2008, Bear Stearns' holding company capital exceeded relevant regulatory standards. According to the information supplied to the SEC by Bear Stearns as of Tuesday, March 11, the holding company had a substantial capital cushion. In addition, as of March 11, the firm had over $17 billion in cash and unencumbered liquid assets.
"Beginning on that day, however, and increasingly throughout the week, lenders and customers of Bear Stearns began to remove funds from the firm, despite its stable capital position. As a result, Bear Stearns' excess liquidity rapidly eroded.
"The Division is continuing to monitor Bear Stearns' condition with a view to the safety of its regulated entities including its registered broker-dealers. The Division believes that Bear Stearns' registered broker-dealers remain in compliance with Commission capital rules.
"The SEC also is working closely with the Department of the Treasury, the Federal Reserve, and the Federal Reserve Bank of New York to ensure that our regulatory actions contribute to orderly and liquid markets." (Press Rel. 2008-44)
In the Matter of Marc J. Bilotti
On March 14, 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 Marc J. Bilotti. The Order finds that Bilotti, age 37, a resident of Charlestown, Massachusetts, was employed as a registered representative at the Boston, Massachusetts branch office of Prudential Securities, Inc. from 1999 to 2003. The Order further finds that, in an action in the U.S. District Court in Massachusetts, a final judgment was entered by consent against Bilotti, permanently enjoining him from future violations of certain antifraud provisions of the federal securities laws. In that District Court action, the Commission's complaint alleged Bilotti defrauded mutual fund companies and the funds' shareholders in order to engage in market timing. Bilotti knew that the fund companies monitored activity in their funds and imposed restrictions on excessive trading, the complaint alleged. To conceal his own identity and the identities of his customers, Bilotti used numerous registered representative identification numbers and opened customer accounts under fictitious names, the complaint alleged. His use of multiple accounts and identification numbers was intended to, and did, make it more difficult for the fund companies to detect their clients' market timing, thus misleading the fund companies to process transactions they would otherwise have rejected, the complaint averred.
Based on the above, the Order bars Bilotti from associating with any broker, dealer, or investment adviser with a right to reapply after three years. Bilotti consented to the issuance of the Order without admitting or denying any of the findings in the Order. (Rels. 34-57501; IA-2722; File No. 3-12991)
SEC Institutes Proceedings to Determine if Registration of Each Class of Anscott Industries, Inc.'s Securities Should be Suspended for a Period Not Exceeding Twelve Months or Revoked
On March 17, the Commission instituted an administrative proceeding against Anscott Industries, Inc. (Anscott) pursuant to Section 12(j) of the Securities Exchange Act of 1934 (Exchange Act). The purpose of the proceeding is to determine whether the registration of each class of Anscott's securities should be suspended for a period not exceeding twelve months or revoked. The Division of Enforcement (Division) alleges that Anscott failed to comply with Section 13(a) of the Exchange Act and Exchange Act Rules 13a-1 and 13a-13 by not filing any periodic reports with the Commission since it filed a 10-QSB for the period ended Dec. 31, 2004.
A hearing will be scheduled before an Administrative Law Judge to take evidence on the Division's allegations, to afford Anscott the opportunity to establish defenses to the allegations, and to determine whether the registration each class of Anscott's securities should be suspended for a period not exceeding twelve months or revoked. The Commission ordered that the Administrative Law Judge in these proceedings issue an initial decision not later than 120 days from the date of service of the order instituting proceedings. (Rel. 34-57510; File No. 3-12992)
Final Judgment Entered Against Former Prudential Registered Representative Marc J. Bilotti Concerning Deceptive Market Timing Practices
The Commission announced that the U.S. District Court in Massachusetts entered a final judgment against Marc J. Bilotti, a defendant in a civil injunctive action brought by the Commission. The Commission's complaint charged that Bilotti, 37, of Charlestown, Massachusetts, defrauded mutual fund companies and the funds' shareholders in order to place in market timing trades on behalf of his customers at Prudential Securities, Inc. The District Court's order, entered March 3, 2008, permanently enjoins Bilotti from violating the antifraud provisions of the federal securities law and orders Bilotti to pay a penalty of $20,000. In a separate related action, the SEC also issued an Order barring Bilotti from associating with any broker, dealer or investment adviser, with a right to reapply after three years.
In the District Court action, the Commission's complaint alleged Bilotti, a registered representative at the Boston branch office of Prudential Securities from 1999 to 2003, defrauded mutual fund companies and the funds' shareholders in order to engage in market timing. Bilotti knew that the fund companies monitored activity in their funds and imposed restrictions on excessive trading, the complaint alleged. To conceal his own identity and the identities of his customers, Bilotti used numerous registered representative identification numbers and opened customer accounts under fictitious names, the complaint alleged. His use of multiple accounts and identification numbers was intended to, and did, make it more difficult for the fund companies to detect their clients' market timing, thus misleading the fund companies to process transactions they would otherwise have rejected, the complaint alleged. The Court's injunction bars Bilotti from violating 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.
Bilotti consented to the issuance of the final judgment in the District Court action without admitting or denying the allegations in the Commission's complaint, and consented to the Commission's Order without admitting or denying its findings. [SEC v. Martin J. Druffner, et. al., United States District Court for the District of Massachusetts Civil Action No. 1:03-cv-12154-NMG] (LR-20497)
Court Orders William Dibella, Former Majority Leader of the Connecticut State Senate, to Pay Over $791,000 in Connection with Fraud Relating to State Pension Fund
The Commission announced today that on March 13, the Honorable Ellen Bree Burns, United States District Judge for the District of Connecticut, entered a judgment imposing sanctions against William A. DiBella, the former Majority Leader of the Connecticut State Senate, and his consulting firm, North Cove Ventures, L.L.C. for their roles in aiding and abetting then Treasurer of the State of Connecticut, Paul J. Silvester in a fraudulent investment scheme. Pursuant to the scheme, Silvester had invested $75 million in state pension funds with Thayer Capital Partners, a Washington, DC-based private equity firm, and arranged for Thayer to pay DiBella a percentage of the investment, though he did not do work to justify the payment.
The court ordered DiBella to disgorge $374,500 (the amount of his ill-gotten gains from the scheme) and to pay $307,127.45 in prejudgment interest. In addition, the Court imposed a penalty of $110,000. The Court declined to enter a permanent injunction or an officer-and-director bar against DiBella.
The Commission's Complaint alleged that, beginning in November 1998, Silvester requested that Thayer, through its chairman, Frederic V. Malek, hire DiBella. Thayer agreed to retain DiBella and to pay him a percentage of the state pension fund's total investment with Thayer, even though DiBella had no prior involvement with the transaction. The Complaint also alleged that Silvester increased the amount of the pension fund's investment with Thayer by at least $25 million (to a total of $75 million) solely to secure a larger fee for DiBella.
On May 18, 2007, after a seven-day trial, a jury found DiBella and North Cove liable for aiding and abetting Silvester's intentional violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and the negligent violations by Malek, Thayer and its affiliates of Section 206(2) of the Investment Advisers Act of 1940. In its decision of March 13, 2008, the court reaffirmed the jury's findings. Previously, the Commission brought and settled charges against Silvester, Thayer, Malek, and two Thayer affiliates. (SEC v. DiBella, et al. LR-20122, LR-18829; Thayer Capital Partners, Rel. No. 33-8457, IA-2276, File No. 3-11585; SEC v. Silvester et al., LR-16759, LR-16834, LR-18436, LR-18460, LR-18461, LR-19241, LR-19566, LR-19583, LR-20027, 34-49277, 34-50300, and 34-54774) [SEC v. William A. DiBella, et al, Civil Action No. 3:04 CV 1342 (EBB) (D. Conn.)] (LR-20498)
SEC Charges Anscott Industries, Inc., its CEO, and Two Penny Stock Promoters in Fraudulent Touting Scheme
The Commission today filed a civil injunctive action in the United States District Court for the Middle District of Florida against two penny stock promoters, Robert M. Esposito and Gregory A. King; Anscott Industries, Inc., a microcap company headquartered in Wayne, New Jersey; and Jack R. Belluscio, Anscott's chairman and chief executive officer. The Commission charges that Esposito, King, Belluscio and Anscott participated in a fraudulent touting scheme of Anscott stock.
The complaint alleges that in April 2003, Esposito orchestrated a reverse merger between Anscott (then a private company) and Liquidix, Inc., a public shell company which, after the merger, changed its name to Anscott. According to the complaint, Belluscio, on behalf of Anscott, issued 4 million shares of Anscott stock to Esposito as compensation for arranging the reverse merger and for future stock promotion work. The complaint further alleges that Belluscio, on behalf of Anscott, filed a fraudulent Form S-8 registration statement with the Commission for the 4 million shares of Anscott issued to Esposito, which improperly enabled Esposito to sell these shares to the public during the fraudulent touting scheme.
As alleged in the complaint, after the reverse merger and the issuance of shares to Esposito, Esposito paid King, another penny stock promoter with whom Esposito had worked previously, to prepare and disseminate materially false and misleading tout sheets promoting Anscott stock. The Commission alleges that these tout sheets -- crafted to appear like independent investment newsletters and entitled the Wall Street Bulletin -- recommended Anscott as a "strong buy," and were disseminated to the public through fax spamming from late May 2003 through July 2003.
According to the complaint, these tout sheets, which King prepared and Belluscio reviewed, contained materially false and misleading representations about Anscott's products, business affiliations, and projected revenues. The complaint further alleges that these tout sheets failed to disclose, among other information, that Esposito, who was paid by the company to promote Anscott stock, was paying King to prepare and disseminate these "newsletters," and that Esposito was selling his Anscott stock during the touting scheme contrary to the Wall Street Bulletin's "strong buy" recommendation and price targets.
During the touting campaign, the price of Anscott's stock rose from around $1.40 a share in mid-May 2003, to a high of $4.59 a share on July 11, 2003. The complaint alleges that during this time, Esposito sold over 1.6 million shares of Anscott stock into the market, realizing over $5 million in illicit profits.
By engaging in the conduct set forth in the complaint, the Commission alleges that:
The Commission's complaint seeks: (1) permanent injunctions and civil penalties against each of the defendants; (2) disgorgement of ill-gotten gains, with pre-judgment interest, from Esposito, King and Belluscio; (3) penny stock bars against Esposito and King; and (4) an officer and director bar against Belluscio.
In addition, the Commission also today instituted an administrative proceeding against Anscott pursuant to Section 12(j) of the Exchange Act, to determine whether to suspend or revoke the registration of each class of Anscott's securities. [SEC v. Robert M. Esposito, Gregory A. King, Jack R. Belluscio and Anscott Industries, Inc., C.A. No. 08:00494 T26 (M.D. Fla.) (EAJ)] (LR-20499)
Immediate Effectiveness of a Proposed Rule Changes
A proposed rule change filed by the International Securities Exchange relating to fee changes (SR-ISE-2008-26) 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 17. (Rel. 34-57488)
A proposed rule change (SR-CBOE-2008-21) filed by the Chicago Board Options Exchange to modify the cut-off time for the submission of Strategy Orders during the modified HOSS opening procedure 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 17. (Rel. 34-57494)
The Commission issued a notice of filing and immediate effectiveness of a proposed rule change (SR-CBOE-2008-27) filed by the Chicago Board Options Exchange under Rule 19b-4(f)(1) of the Securities Exchange Act of 1934 to clarify its description of an existing program under which it makes subsidy payments to CBOE members that provide certain order routing functionalities to other CBOE members and/or use such functionalities themselves. Publication is expected in the Federal Register during the week of March 17. (Rel. 34-57498)
Approval of Proposed Rule Change
The Commission approved a proposed rule change (SR-NASD-2007-021) filed by the National Association of Securities Dealers ("NASD," n/k/a Financial Industry Regulatory Authority, Inc.) regarding a proposal to amend the definition of "public arbitrator" in the NASD's Code of Arbitration Procedure for Customer Disputes and Code of Arbitration Procedure for Industry Disputes to add an annual revenue limitation with respect to professional services rendered to certain persons or entities. Publication is expected in the Federal Register during the week of March 17. (Rel. 34-57492)
Proposed Rule Change
A proposed rule change (SR-FINRA-2007-021) has been filed by the Financial Industry Regulatory Authority regarding a proposal to amend the Code of Arbitration Procedure for Customer Disputes and the Code of Arbitration Procedure for Industry Disputes to provide specific procedures that will govern motions to dismiss and to amend the provision of the eligibility rule related to dismissals. Publication is expected in the Federal Register during the week of March 17. (Rel. 34-57497)
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