SEC Adopts Regulations to Implement Sudan Accountability and Divestment Act of 2007
The Securities and Exchange Commission has adopted rules requiring a registered investment company (fund) to disclose when it divests, in accordance with the Sudan Accountability and Divestment Act of 2007, from securities of issuers that the fund determines conduct or have direct investments in certain business operations in Sudan. The Commission adopted the rules on April 24, 2008. The Sudan Accountability and Divestment Act required the SEC to prescribe regulations requiring this disclosure by April 29, 2008.
On Dec. 31, 2007, the President signed the Sudan Accountability and Divestment Act into law. Among other things, the Act provides that no person may bring any civil, criminal, or administrative action against any fund, or any employee, officer, director, or investment adviser of the fund, based solely upon the fund divesting from securities issued by persons that the fund determines, using credible information that is available to the public, conduct or have direct investments in certain business operations in Sudan. This limitation on actions does not apply unless the fund makes disclosures in accordance with regulations prescribed by the Commission.
The rules adopted by the Commission specify the SEC forms on which disclosure must be made and provide a transition period, ending May 14, 2008, for disclosure of divestments that occurred between Dec. 31, 2007, and April 30, 2008, the effective date of the rules.
The full text of the detailed release concerning these rules has been posted to the SEC Web site at http://www.sec.gov/rules/final/2008/34-57711.pdf. (Press Rel. 2008-67)
Report on Administrative Proceedings
The Report on Administrative Proceedings for the Period Oct. 1, 2007, through March 31, 2008, has been issued giving summary statistical information on the Commissionís administrative proceedings caseload. The report is published in the SEC Docket and appears on the Commissionís website. (Rel. 34-57743A)
Commission Dismisses Application for Review
The Commission dismissed Matthew Brian Proman's appeal of FINRA's refusal to vacate the bar imposed on him pursuant to a 1998 settlement agreement. The Commission found that Section 19(d) of the Securities Exchange Act of 1934 authorizes review of final disciplinary actions, among other things, but does not permit review of FINRA's collateral decision declining to remove a "bar imposed in [an] earlier decision." (Rel. 34-57740; File No. 3-12729)
SEC Charges Two Former Executives of Monster Worldwide, Inc. for Backdating Options
Commission today charged two former senior executives at Monster Worldwide, Inc., for their alleged participation in a multi-year scheme to secretly backdate stock options granted to thousands of Monster officers, directors and employees.
The SEC’s complaint, filed in the District Court for Southern District of New York, alleges that Monster’s former president and chief operating officer James J. Treacy and former controller Anthony Bonica participated in a scheme that began in 1997 to fraudulently backdate stock options to coincide with the dates of low closing prices for the New York-based company’s common stock.
The SEC is alleging that this scheme resulted in grants of in-the-money options to numerous individuals without Monster properly describing its options practices in its public filings or properly accounting for these options in its financial statements. As a result of their conduct, Monster misrepresented that all stock options were granted at the fair market value of the stock on the date of the award, when that was not the case. Monster also filed materially misstated financial statements with the SEC in its Forms 10-K and 10-Q that did not recognize compensation expense for the company’s stock option grants, as required by generally accepted accounting principles. As a result, Monster overstated its aggregate pre-tax operating income by approximately $339.5 million for fiscal years 1997 through 2005.
The SEC’s complaint further alleges that Treacy and Bonica personally benefited from the fraudulent scheme by receiving and exercising backdated grants of in-the-money options.
The SEC is charging Treacy with violating Section 17(a) of the Securities Act, Sections 10(b), 13(b)(5), 14(a) and 16(a) of the Exchange Act and Rules 10b-5, 13b2-1, 13b2-2, 14a-9 and 16a-3 thereunder, and for aiding and abetting Monster’s violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13. The SEC is charging Bonica with violating Section 17(a) of the Securities Act, Sections 10(b), 13(b)(5), and 14(a) of the Exchange Act and Rules 10b-5, 13b2-1, and 14a-9 thereunder, and for aiding and abetting Monster’s violations of Sections 10(b), 13(a), 13(b)(2)(A), and 14(a) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, 13a-11, 13a-13, and 14a-9 thereunder. The Commission is seeking permanent injunctive relief, disgorgement of ill-gotten gains and financial penalties from each defendant, as well as an officer and director bar against Treacy. [SEC v. James J. Treacy, United States District Court for the Southern District of New York, Civil Action No. 08 CV 4052 , S.D.N.Y.] (LR-20544; AAE Rel. 2817)
SEC Charges Mayor of Birmingham, Alabama and Others for Undisclosed Payment Scheme in Connection With Municipal Bond Deals
The Commission filed a civil action today against Birmingham Mayor Larry Langford and other defendants. The SEC’s complaint alleges that while Langford served as president of the County Commission of Jefferson County, Alabama, he accepted more than $156,000 in undisclosed cash and benefits over the course of two years from William Blount, the chairman of Blount Parrish & Co, Inc. According to the SEC's complaint, Langford selected Blount Parrish to participate in every Jefferson County municipal bond offering and security-based swap agreement transaction during 2003 and 2004, earning Blount Parrish over $6.7 million in fees. Moreover, the SEC alleges, Langford and Blount concealed the payment scheme by using their long-time friend, Albert LaPierre, an Alabama registered political lobbyist, as a conduit. The case is the SEC’s first enforcement action involving security-based swap agreements.
The SEC alleges that of the five municipal bond offerings at issue, Blount Parrish participated as lead or co-underwriter on three municipal bond offerings, and as a remarketing agent on a fourth bond offering. In connection with all five bond offerings, Langford signed the official statements, which were intended to disclose material information to investors, on behalf of Jefferson County. In its role as underwriter or remarketing agent as to four of the bond offerings, Blount Parrish reviewed the official statements and distributed those materials to investors in connection with its sale of these securities. The official statements did not disclose Blount’s payments to Langford.
The SEC further alleges that Langford directed that Blount Parrish be included in four security-based swap transactions. Langford signed letter agreements with the counterparties to the swap transactions representing that Jefferson County had requested and approved fee payments to Blount’s firm for services to Jefferson County in connection with the swap transactions. However, according to the SEC’s complaint, neither Langford nor Blount disclosed to Jefferson County Blount’s payments to Langford.
The complaint charges Langford, Blount and Blount Parrish with violations of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder; Blount and Blount Parrish for violations of Section 15B(c)(1) of the Exchange Act and Municipal Securities Rulemaking Board Rules G-17 and G-20; and LaPierre with aiding and abetting Blount and Blount Parrish’s violations. The complaint seeks judgments against each defendant providing for permanent injunctions, disgorgement with prejudgment interest and a civil money penalty. [SEC v. Larry P. Langford, William B. Blount, Blount Parrish & Co., Inc., and Albert W. LaPierre, Case No. Case No. cv-08-B-0761-S (N.D. Ala.)] (LR-20545)
INVESTMENT COMPANY ACT RELEASES
Franklin California Tax-Free Income Fund, et al.
An order has been issued on an application filed by Franklin California Tax-Free Income Fund, et al., under Section 6(c) of the Investment Company Act for an exemption from Rule 12d1-2(a) under the Act. The order permits funds of funds relying on Rule 12d1-2 under the Act to invest in certain financial instruments. (Rel. IC-28257 - April 28)
Immediate Effectiveness of Proposed Rule Changes
A proposed rule change filed by the New York Stock Exchange (SR-NYSE-2008-31) to reduce its routing fee for floor brokers 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 May 5, 2008. (Rel. 34-57730)
The Commission issued notice of immediate effectiveness of a proposed rule change (SR-BSE-2008-16) filed by the Boston Stock Exchange to list and trade options on Index Multiple ETFs and Index Inverse ETFs. Publication is expected in the Federal Register during the week of May 5, 2008. (Rel. 34-57735)
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