Following is a schedule of Commission meetings, which will be conducted under provisions of the Government in the Sunshine Act. Meetings will be scheduled according to the requirements of agenda items under consideration.
Open meetings will be held in the Auditorium, Room L-002 at the Commission's headquarters building, 100 F Street, N.E., Washington, D.C. Visitors are welcome at all open meetings, insofar as space is available. Persons wishing to photograph or videotape Commission meetings must obtain permission in advance from the Secretary of the Commission. Persons wishing to tape record a Commission meeting should notify the Secretary's office 48 hours in advance of the meeting.
Any member of the public who requires auxiliary aids such as a sign language interpreter or material on tape to attend a public meeting should contact SECInterpreter@SEC.gov at least three business days in advance. For any other reasonable accommodation related disability contact DisabilityProgramOfficer or call 202-551-4158.
Open Meeting - Monday, May 5, 2008 - 10:00 a.m.
The subject matter of the open meeting will be:
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 Amir Rosenthal, Esq.
On April 25, the Commission issued an Order of Suspension pursuant to Rule 102(e)(2) of the Commission's Rules of Practice forthwith suspending Amir Rosenthal, Esq. from appearing or practicing before the Commission, based on the entry of a felony conviction against him. The order finds that on July 31, 2007, a judgment was entered against Rosenthal, following his guilty plea, for conspiracy to commit securities fraud in violation of 18 U.S.C. 371 (United States v. Rosenthal, 07 CR 69-02, E.D.N.Y). (Rel. 34-57722; File No. 3-13021)
Calvin Kirk French, CPA Reinstated to Appear and Practice Before the Commission as an Accountant Responsible for the Preparation or Review of Financial Statements Required to be Filed with the Commission
Pursuant to Rule 102(e)(5)(i) of the Commission's Rules of Practice, Calvin Kirk French, CPA has applied for and been granted reinstatement of his privilege to appear and practice before the Commission as an accountant responsible for the preparation or review of financial statements required to be filed with the Commission. Mr. French was suspended from appearing or practicing before the Commission on March 5, 1996. His reinstatement is effective immediately. (Rel. 34-57724; AAE Rel. 2814; File No. 3-8967)
In the Matter of Robert A. Putnam, CPA
The Commission announced that on April 28, it issued a settled administrative order against a former partner at Arthur Andersen, LLP (Andersen), for his role in the audits of two software companies, HBOC & Co. (which subsequently merged into McKesson Corporation) and ebix.com. The Commission ordered that Robert A. (Skip) Putnam cease and desist from committing or causing violations of Sections 17(a)(2) and (3) of the Securities Act of 1933, and barred Putnam from appearing or practicing before the Commission as an accountant, with a right to apply for reinstatement after five years.
Putnam, without admitting or denying the Commission's findings, consented to entry of the order against him. The order finds that Putnam, in his work as the Andersen audit engagement partner for HBOC and ebix.com, failed to exercise due professional care in the performance of both audits, failed to adequately plan and supervise the audits, and failed to have a sufficient basis for an opinion on the financial statements of each company. The order further finds that Putnam failed to follow appropriate procedures in reviews of HBOC's interim financial information. (Rels. 33-8912; 34-57725; AAE Rel. 2815; File No. 3-10998)
One Cleared, Two Sanctioned On Market Timing Charges
Charges against Lance Newcomb were dismissed and Warren Lammert and Lars Soderberg were subjected to cease-and-desist orders. Charges against the three concerned their roles in "market timing" transactions in mutual funds managed by their employer, Denver, Colorado, investment adviser Janus Capital Management LLC. The actions were ordered after a hearing before an administrative law judge. (Initial Decision No. 348; File No. 3-12386)
In the Matter of Alexander James Trabulse
On April 28, 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 Alexander James Trabulse (Trabulse). The Order finds that on April 7, 2008, a final judgment was entered by consent against Trabulse, permanently enjoining him from future violations of Sections 5(a), 5(c), and 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) and 206(2) of the Investment Advisers Act of 1940, in the civil action entitled Securities and Exchange Commission v. Alexander James Trabulse, et al., Civil Action Number C-07-4975 WHA, in the United States District Court for the Northern District of California. The Commission's complaint alleged that Trabulse defrauded investors by falsifying investor account statements and misappropriated fund assets by taking for personal use assets to which he was not entitled.
Based on the above, the Order bars Trabulse from association with any investment adviser, with the right to reapply for association after five (5) years to the appropriate self-regulatory organization, or if there is none, to the Commission. Trabulse consented to the issuance of the Order without admitting or denying any of the Commission's findings in the Order except as to the jurisdiction of the Commission over him and over the matters set forth in the Order. (Rel. IA-2728; File No. 3-13023)
In the Matter of Arthur Scheinert
On April 28, 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 Arthur Scheinert. The Order finds Scheinert was Vice President of Marketing and a sales representative for Helvetia Pharmaceuticals from January 2001 through August 2002, and during part of this time he held securities licenses and sold Helvetia securities while not associated with a registered broker or dealer. Additionally, Scheinert admitted that on September 8, 2004 he pled guilty to a count of criminal conspiracy to commit mail, wire, and securities fraud and a count of committing mail fraud before the United States District Court for the Southern District of Florida in United States v. Arthur Scheinert, Case No. 04-20250-CR-JORDAN(4). On December 15, 2005 the District Court sentenced him to sixty months in prison, three years of supervised release, and a restitution order in the amount of $5,858,850.55.
Based on the above, the Order bars Arthur Scheinert from association with any broker dealer. Scheinert consented to the issuance of the Order without admitting or denying any of the findings except for the Commission's jurisdiction over him and the subject matter of the proceedings. (Rel. 34-57726; File No. 3-13022)
Commission Charges vFinance Investments, Inc., and its Former Broker for Unlawful Distributions of Two Microcap Stocks
On April 28, the Commission instituted separate settled enforcement actions against vFinance Investments, Inc. (vFinance) and Ryan G. Leeds, a broker formerly associated with vFinance, for their respective roles in the illegal distributions of the securities of Sedona Software Solutions, Inc. (Sedona) and SHEP Technologies, Inc. (SHEP) through the Over-the-Counter Bulletin Board (OTCBB).
The Commission found that, from September 2002 through June 2003, Leeds violated Section 5 of the Securities Act of 1933 by offering and selling restricted Sedona and SHEP securities through the OTCBB on behalf of an offshore vFinance customer, a Bermudian securities firm. No registration statements were in effect as to those offers and sales, and no valid exemptions from registration were applicable to them. Sedona and SHEP were thinly-traded issuers at the time of the illegal distributions, and had little or no operations or assets. The Commission found that, prior to offering and selling the Sedona and SHEP securities, Leeds failed to conduct a reasonable inquiry regarding these securities to determine whether the Bermudian firm was an underwriter or was otherwise engaged in an illegal distribution of securities. The Commission also found that vFinance failed reasonably to supervise its broker with a view toward preventing and detecting his Section 5 violations.
vFinance, without admitting or denying the findings in the Commission's Order, consented to a censure, an order to disgorge its share of the profits from the illegal Sedona and SHEP transactions, and an order to comply with its undertaking to retain an independent consultant to review the firm's compliance procedures concerning Section 5. Leeds consented, without admitting or denying the findings in the Commission's Order, to an order to cease and desist from committing or causing any violations and any future violations of Section 5, to be suspended for ninety days from association with any broker or dealer, to disgorge his share of the profits from the illegal Sedona and SHEP transactions, and to pay a civil penalty of $6,500. As part of the settlement with Leeds, the Commission will dismiss its claims against Leeds in a related multiparty civil action filed on December 19, 2007 in the United States District Court for the Southern District of New York. For further information see SEC v. Lines, et al., 07 Civ. 11387 (S.D.N.Y. filed Dec. 19, 2007 (LR- 20407). (Rels. 34-57727, File No. 3-13024; 34-57728, File No. 3-13025)
Jason R. Hyatt, Jay D. Johnson, and Hyatt Johnson Capital, LLC
The Commission announced that on April 18, 2008, the Honorable William J. Hibbler of the United States District Court for the Northern District of Illinois, acting as emergency judge, issued an ex parte order for emergency relief (Order) against Defendants Jason R. Hyatt (Hyatt), a resident of St. Charles, Illinois, Jay Johnson (Johnson), a resident of Downers Grove, Illinois, and Hyatt Johnson Capital, LLC (HJ Capital), a privately-held company headquartered at Downers Grove, Illinois. The Order, among other things, imposed an asset freeze on all assets under the control of Defendants Hyatt and HJ Capital.
The Commission earlier that day filed a civil injunctive complaint alleging that Defendants Hyatt, Johnson and HJ Capital, from approximately 2003 through 2007, while acting as unregistered broker-dealers and investment advisers, offered and sold to investors membership shares in at least ten Limited Liability Corporations (LLCs) controlled and managed by HJ Capital (HJ Capital LLCs). The Defendants promised to use investor funds to purchase securities sold by LLCs managed by BCI Aircraft Leasing, Inc. (BCI) on behalf of the HJ Capital LLCs. In reality, according to the complaint, at least $5.4 million was misappropriated, among other thing, to operate a Latin-themed restaurant in Chicago named De La Costa and to pay for Defendant Hyatt's personal expenses, including numerous mortgage payments and substantial home improvements for two homes, as well as at least $155,000 worth of art and antiques, a Maserati, a Mercedes, a Hummer H2, a Yukon Denali, and other vehicles.
The complaint alleges that, as a result of their conduct, the Defendants violated Section 17(a) of the Securities Act of 1933, Sections 10(b) and 15(a)(1) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Sections 206(1), 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder.
Specifically, the complaint alleges that, from approximately 2003 through approximately 2007, the Defendants raised at least $24.5 million from approximately 120 investors in at least twelve states. The complaint also alleges that the Defendants represented to investors that the BCI LLCs would use investor funds, along with other sources of funds, to purchase commercial aircraft on lease to commercial airlines. In connection with the sale of a promissory note for approximately $2 million (the Promissory Note), the Defendants represented to an individual investor that his funds would be invested in a joint venture between BCI and HJ Capital called Chicago Aviation Partners, which would use the funds to purchase a group of commercial aircraft.
The complaint alleges that, unbeknownst to HJ Capital investors, from July 2006 to March 2007, Defendant Hyatt, through Defendant HJ Capital, misappropriated nearly $1.6 million in investor funds for his personal use. In addition, the complaint alleges that Defendant Hyatt, through Defendant HJ Capital, misappropriated the $2 million from the Promissory Note investment to fund the startup costs of a Latin-themed restaurant in Chicago named De La Costa, which Hyatt co-owned with several other partners. According to the complaint, when Defendant Johnson became aware of Hyatt's misappropriation of this $2 million investment, Johnson chose to participate in a scheme with Hyatt to cover up his fraud, diverting at least $2.4 million that belonged to other investors to repay the note investor, thereby concealing the past misappropriation.
The complaint also alleges that, from 2003 to 2006, Defendant Hyatt, through Defendant HJ Capital, misappropriated nearly $1.8 million of investor funds in the form of undisclosed commissions from BCI in connection with the capital invested by HJ Capital LLCs in BCI offerings. BCI paid these commissions out of the investor funds it received from HJ Capital. According to the complaint, Defendant Johnson knew or was reckless in not knowing that Hyatt was receiving undisclosed commissions, and yet failed to disclose this fact, and made other misleading statements to investors, in connection with subsequent offers or sales of securities.
The complaint also alleges that, unbeknownst to HJ Capital investors, BCI and its owner and CEO Brian Hollnagel (Hollnagel) had been defrauding investors by, among other things, failing to use investor funds to purchase aircraft as represented (sometimes never purchasing aircraft at all), misappropriating investor profits in certain LLCs in order to fund other unrelated purchases on behalf of BCI, and using some investors' funds to make payments to other investors as purported returns.
The complaint alleges that the Defendants Hyatt, Johnson and HJ Capital falsely assured investors that, as part of their management of the HJ Capital LLCs, they had performed and would continue to perform due diligence regarding BCI's use of investor funds. Contrary to their representations, the Defendants did little, if anything, to verify the legitimacy of the BCI offerings. In fact, according to the complaint, the Defendants received records indicating that BCI was diverting HJ Capital investor funds for improper uses, specifically, diversion to undisclosed, materially different BCI LLCs. Defendants thus knew or were reckless in not knowing of BCI's improper diversion of investor funds. Despite this, the Defendants failed to either adequately review or take action to follow up on these red flags. The Defendants also failed to disclose this information to HJ Capital investors.
Previously, on Aug. 13, 2007, the Commission brought an emergency enforcement action in the U.S. District Court, Northern District of Illinois, against BCI and Hollnagel. SEC v. Hollnagel et al., 1:07-cv-4538 (J. Bucklo). [Aug. 24, 2007 Litigation Release No. 20254] As a result of that action, the Court made findings of fraud, issued a preliminary injunction against BCI and Hollnagel, and ordered BCI and Hollnagel to repay all investors, including the HJ Capital LLCs, within 60 days. [SEC v. Jason R. Hyatt, Jay Johnson and Hyatt Johnson Capital, LLC, Civil Action No. 1:08-CV-2224 (N.D. Ill.)(Lindberg, J.)] (LR-20540)
INVESTMENT COMPANY ACT RELEASES
Thrivent Mutual Funds, et al.
A notice has been issued giving interested persons until May 19, 2008, to request a hearing on an application filed by Thrivent Mutual Funds, et al., for an order under Section 6(c) of the Investment Company Act for an exemption from Rule 12d1-2(a) under the Act. The order would permit funds of funds relying on Rule 12d1-2 under the Act to invest in certain financial instruments. (Rel. IC-28252 - April 24)
Notices of Deregistration under the Investment Company Act
For the month of April, 2008, a notice has been issued giving interested persons until May 20, 2008, 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:
Approval of Proposed Rule Changes
The Commission approved a proposed rule change (SR-ISE-2007-77), as modified by Amendment Nos. 1 and 2 thereto, filed by the International Securities Exchange relating to complex orders has been approved pursuant to Section 19(b)(2) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of April 28. (Rel. 34-57706)
The Commission approved a proposed rule change (SR-Phlx-2007-69), as modified by Amendment Nos. 1 and 2 thereto, filed by the Philadelphia Stock Exchange relating to obvious errors. Publication is expected in the Federal Register during the week of April 28. (Rel. 34-57712)
Proposed Rule Change
The American Stock Exchange filed a proposed rule change (SR-Amex-2008-14), and Amendment No. 1 thereto, to permit the listing and trading of additional index options series that do not meet current requirements of Rule 903C. Publication is expected in the Federal Register during the week of April 28. (Rel. 34-57707)
Immediate Effectiveness of Proposed Rule Change
The Commission issued notice of immediate effectiveness of a proposed rule change (SR-Phlx-2008-30) filed by the Philadelphia Stock Exchange relating to the criteria for securities that underlie options traded on the Exchange. Publication is expected in the Federal Register during the week of April 28. (Rel. 34-57715)
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