SEC Signs Protocols for Sharing Information on International Accounting Standards
U.S. and European Authorities from Belgium, Bulgaria, Norway and Portugal Add to Growing List of Cooperative Arrangements
The Securities and Exchange Commission today signed protocols to share information on the application of International Financial Reporting Standards (IFRS) with financial regulators in four European countries.
The arrangements with regulators in Belgium, Bulgaria, Norway and Portugal are in line with the Work Plan previously agreed to between the SEC and the Committee of European Securities Regulators (CESR).
The most recent protocols follow on one signed recently with the UK Financial Reporting Council and the UK Financial Services Authority. The protocols are based on a model protocol developed between the Commission and CESR and provide for the confidential exchange of issuer-specific information. The Commission anticipates signing additional protocols with other CESR member jurisdictions in the future.
These protocols join the growing list of arrangements for regulatory, enforcement and supervisory cooperation between the Commission and its foreign counterparts.
SEC Chairman Christopher Cox said, "These four new international protocols add to the arrangements that the SEC has concluded within the last year alone with the College of Euronext Regulators, the German Federal Financial Supervisory Authority, the United Kingdom Financial Services Authority and the UK Financial Reporting Council - all aimed at enhancing regulatory, enforcement and supervisory cooperation. International arrangements of this kind are quickly becoming a cornerstone of U.S. securities regulation in today's global marketplace. As American investors and companies increasingly demand seamless cross-border access to information and capital, the SEC is striving for seamless high-quality regulation across borders. These new avenues for cooperation and coordination represent an important step in our pursuit of that goal."
Ethiopis Tafara, Director of the SEC's Office of International Affairs, said, "The SEC has long used information sharing arrangements as a tool to facilitate cooperation with foreign regulators in securities enforcement matters. With the proliferation of internationally active firms and the recent interest in cross-border market affiliations, it has become evident that arrangements for regulatory and supervisory cooperation are also becoming critical tools for the SEC and its foreign counterparts. Together such arrangements establish clear frameworks for coordinating with foreign regulators in the interest of ensuring effective and efficient regulation and oversight of global firms and markets."
The protocols concluded today:
(Press Rel. 2008-95)
Commission Revokes Registration of Securities of American Kiosk Corp. for Failure to Make Required Periodic Filings
On May 23, the Commission revoked the registration of each class of registered securities of American Kiosk Corp. (American Kiosk) for failure to make required periodic filings with the Commission.
Without admitting or denying the findings in the order, except as to jurisdiction, which it admitted, American Kiosk consented to the entry of an Order Making Findings and Revoking Registration of Securities Pursuant to Section 12(j) of the Securities Exchange Act of 1934 as to American Kiosk Corp. finding that it had failed to comply with Section 13(a) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 13a-1 and 13a-13 thereunder and revoking the registration of each class of American Kiosk's securities pursuant to Section 12(j) of the Exchange Act. This order settled the charges brought against American Kiosk in In the Matter of American Kiosk Corp., et al., Administrative Proceeding File No. 3-13038.
Brokers and dealers should be alert to the fact that Exchange Act Section 12(j) provides, in pertinent part, as follows:
No member of a national securities exchange, broker, or dealer shall make use of the mails or any means or instrumentality of interstate commerce to effect any transaction in, or to induce the purchase or sale of, any security the registration of which has been and is suspended or revoked . . . .
For further information see Order Instituting Administrative Proceedings and Notice of Hearing Pursuant to Section 12(j) of the Securities Exchange Act of 1934, In the Matter of American Kiosk Corp., et al., Administrative Proceeding File No. 3-13038, Exchange Act Release No. 57798 (May 8, 2008). (Rel. 34-57853; File No. 3-13038)
Commission Denies Motions for Summary Affirmance by Kevin Hall, CPA, and Rosemary Meyer, CPA
The Commission has denied motions by Kevin Hall, CPA, and Rosemary Meyer, CPA, for summary affirmance of an administrative law judge's initial decision. The Commission found that the Division of Enforcement's appeal of the initial decision presents important questions about auditors' fundamental responsibilities under Generally Accepted Auditing Standards, and that the Commission would benefit by considering the appeal "as part of the normal appellate process rather than the abbreviated process involved with a summary affirmance." (Rel. 34-57855; File No. 3-12208)
Commission Sustains NYSE Disciplinary Action Against Schon-Ex, LLC
The Commission has sustained sanctions imposed by the New York Stock Exchange on Schon-Ex, LLC, an Exchange member firm, for violating Exchange rules. The Exchange, finding that Schon Ex had violated NYSE rules by providing inaccurate trading data through electronic "blue sheet" submissions, and by maintaining inadequate written supervisory procedures relating to its blue sheet submissions, censured Schon Ex and fined it $300,000. The Commission found that Schon Ex's misconduct was significant, observing that the erroneous data submissions occurred over several years, involved numerous blue sheet reports, and continued for almost a year after Exchange staff notified the Firm about the problem. In sustaining the Exchange's sanctions, the Commission noted Schon-Ex's failure to remedy the problem in a timely manner and the inadequacy of the firm's procedures in preventing or detecting the problem in the first place. (Rel. 34-57857; File No. 3-12693)
Permanent Injunction, Order of Disgorgement and Penalty Entered Against Hyun Soo Jang, Kangsan Kim, Peoplen Investment, Corp., and Unus Capital Management, Inc.
The Commission announced that on May 13, 2008, the Honorable Christina A. Snyder, United States District Judge for the Central District of California, entered a final judgment by default against defendants Hyun Soo Jang (Jang), Kangsan Kim (Kim), Unus Capital Management, Inc. (Unus), and PeopleN Investment Corp. (PeopleN), in connection with an investment scheme perpetrated by Jang and Kim that raised more than $4 million from members of Southern California's Korean language-speaking community. Judge Snyder ordered that each of the defendants be enjoined from future violations of the federal securities laws, including the anti-fraud provisions of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. Judge Snyder further held defendants Jang and PeopleN jointly and severally liable to pay disgorgement of $3,358,274.18, plus prejudgment interest of $267,701.38, ordered Unus to pay disgorgement of $326,000, plus prejudgment interest of $25,986.76, and assessed a $130,000 civil penalty against Jang. The Commission did not request, and Judge Snyder did not order, disgorgement and penalties from Kim, because Kim previously had been ordered to pay restitution in an amount exceeding the Commission's disgorgement claim and is currently serving a lengthy prison sentence in connection with his guilty plea in the parallel criminal matter.
The Commission's complaint, filed on Oct. 24, 2006, alleged that Jang and Kim portrayed their now-defunct firms, PeopleN and Unus, as legitimate, regulated companies. The complaint alleged that Jang and Kim represented to potential investors that they were experienced investment advisers, and that Kim's registered investment advisory firm, Unus, would select stocks, bonds and mutual funds that would be purchased and sold for client accounts by Jang's purported broker-dealer, PeopleN, which was falsely held out as a licensed Broker/Dealer and member of the NYSE, NASDAQ, and SIPC. The complaint alleged that Jang and Kim did not use investor funds to purchase securities as promised. Instead, according to the complaint, Jang and Kim misappropriated the funds entrusted to them, including about $2.5 million taken by Jang, and $500,000 taken by Kim and Unus. The complaint also alleged that Jang used an additional $500,000 to repay existing investors with money that had been deposited by new investors. For additional information, see Litigation Release No. 19880 (Oct. 25, 2006). [SEC v. Hyun Soo Jang, Kangsan Kim, Unus Capital Management, Inc. and PeopleN Investment, Corp., Civil Action No. CV 06-06775 CAS (AJWx) (C.D. Cal.)] (LR-20593)
Final Judgment Setting Disgorgement and a Civil Penalty Entered Against Defendant Patrick Kirkland
The Commission announced that on May 21, the United States District Court for the Middle District of Florida entered a Final Judgment Setting Disgorgement and a Civil Penalty Against Defendant Patrick Kirkland. The Final Judgment which stems from Kirkland's conduct in a fraudulent unregistered securities offering, orders Kirkland to pay $7,246,347.78 in disgorgement and a $250,000 civil money penalty. The Final Judgment did not order Kirkland to pay prejudgment interest on the disgorgement amount.
Previously, on Sept. 25, 2007, the Court granted the Commission's motion for summary judgment against Kirkland which permanently enjoined him from further violations of Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, thereunder. [SEC v. Patrick Kirkland, et al., Civil Action No. 06-CV-183-ORL-28 KRS Antoon (M.D. Fla.)] (LR-20594)
SEC Charges James G. Marquez, Former Co-Principal of Bayou Hedge Fund
On May 22, the Commission filed a civil injunctive action alleging antifraud violations against James G. Marquez, in the United States District Court for the Southern District of New York. Marquez was a portfolio manager and principal of the failed Connecticut-based hedge fund Bayou Fund, LLC (Bayou) from 1996 until October 2001. Marquez has agreed to settle the charges by consenting, without admitting or denying the allegations in the Commission's complaint, to the entry of a final judgment permanently restraining and enjoining him from future violations of the antifraud provisions of the federal securities laws, 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 (Exchange Act). The settlement terms are subject to court approval.
The Commission's complaint alleges that from 1996 until October 2001, Marquez and his partners, Samuel Israel III and Daniel E. Marino, systematically concealed from then-current and prospective investors Bayou's mounting trading losses by materially misrepresenting the fund's performance in correspondence, periodic account statements, and promotional materials. The complaint further alleges that, with Marquez's knowledge, Bayou created a sham accounting firm known as Richmond-Fairfield Associates (Richmond-Fairfield) to issue and certify phony "independent" yearly audits of the Bayou's performance, and that, beginning in 1999, Bayou distributed fabricated audit opinions by Richmond-Fairfield attesting to the accuracy and truthfulness of the fund's year-end financial statements. The complaint further alleges that Marquez, Israel, and Marino carefully concocted Bayou's artificial earnings to create the appearance that the fund had achieved modest, steady, and believable growth, which enabled Bayou to attract millions of dollars in new investor capital. The complaint further alleges that in or about October 2001, Marquez dissociated himself from Bayou, but took no steps to expose Bayou's continuing fraudulent scheme.
On Dec. 14, 2006, Marquez pleaded guilty to one count of criminal conspiracy for his conduct relating to Bayou. On Jan. 22, 2008, Marquez was sentenced to fifty-one months in prison and ordered to pay $6,259,650 in criminal restitution.
The Commission acknowledges the assistance of the White Plains Division of the United States Attorney's Office for the Southern District of New York, and of the Federal Bureau of Investigation. The Commission's investigation continues. [SEC v. James G. Marquez, Civil Action No. 08-CIV-4773 (S.D.N.Y.)] (LR-20595A)
SEC Charges Tennessee Investment Adviser with Misappropriating Client Funds
On May 22, the Commission filed a Complaint for Injunctive and Other Relief (Complaint) in the United States District Court for the Eastern District of Tennessee against LandOak Securities, LLC (LandOak Securities); Patrick L. Martin (Martin); and Michael A. Atkins (Atkins). LandOak Securities is a registered investment adviser and broker-dealer based in Knoxville, Tennessee. Martin is an owner and associated person of LandOak. Atkins is a former owner and associated person of LandOak.
The Complaint alleges that between July 1997 and July 1998, Martin and Atkins offered and sold to investors approximately $3.6 million in promissory notes and membership interests in LandOak Mortgage, LLC (LandOak Mortgage), a Tennessee entity they founded and controlled. According to the Complaint, thirteen of the approximately thirty-five investors in LandOak Mortgage were also LandOak Securities advisory clients, who together invested a total of $1.8 million in LandOak Mortgage. As represented to investors at the time of the offering, LandOak Mortgage loaned the raised funds to LandOak Development, LLC (LandOak Development), another Tennessee entity partly owned by Martin and Atkins. According to the Complaint, LandOak Development used the funds to purchase and develop commercial property, again as represented to investors. The Complaint alleges that between July 2002 and January 2003, Martin and Atkins misappropriated over $2.8 million of funds due to LandOak Mortgage investors. Further, the Complaint alleges that Martin and LandOak Securities made false statements in LandOak Securities' Commission filings and failed to maintain certain required advisory books and records.
The Complaint alleges that the defendants have violated the antifraud provisions of Sections 204, 206(1), 206(2), 206(4), and 207 of the Investment Advisers Act of 1940 and Rules 204-2 and 206(4)-2 thereunder. The Complaint seeks an order granting the Commission's requests for (i) permanent injunctions against future violations; (ii) disgorgement of all ill gotten gains plus prejudgment interest; and (iii) imposition of civil penalties. [SEC v. LandOak Securities, LLC; Patrick L. Martin; and Michael A. Atkins, Civil Action No. 3:08CV209 (EDTN)] (LR-20597)
SEC Charges Six in Connection with Pump-and-Dump Scheme and Fraudulent Private Offering and Settles Fraud Charges with Attorney
On May 22, the Commission filed a civil injunctive action charging Global Development & Environmental Resources, Inc., Darko S. Mrakuzic, Dante M. Panella, Anthony M. Cimini Sr., and Philip Prichard with securities fraud based on their participation in a fraudulent scheme to evade registration requirements and engaging in a "pump and dump" stock manipulation scheme. The Commission also settled fraud charges against California-based securities attorney, Carmine J. Bua, who authored a fraudulent legal opinion, which authorized the issuance of purportedly unrestricted Global shares. Further, the Commission charged defendants Prichard and Pietro Cimino with conducting a fraudulent private offering of Global stock.
The Commission's complaint, filed in the United States District Court for the Middle District of Florida, alleges that from June through August 2005, defendants engaged in a complex scheme to evade the registration requirements by obtaining a fraudulently backdated convertible promissory note, using a forged assignment to assign the note to three foreign entities and then converting the note into unrestricted Global shares. The complaint alleges that defendant Bua drafted the assignment and legal opinion letter authorizing the issuance of unrestricted shares, despite possessing information which undermined the validity of the note and its subsequent assignment.
The complaint further alleges that the defendants then engaged in a "pump-and-dump" scheme by arranging for Global to issue numerous press releases that contained false and misleading information relating to Global's purported clients, pending contracts and revenue projections. According to the complaint, at least one entity defendant Mrakuzic controlled sold illegally issued Global shares into an artificially inflated market generating profits of approximately $1.2 million. In addition, defendant Panella sold illegally issued Global shares for profits of nearly $1.1 million.
The complaint also alleges that during July 2005, defendants Global, Prichard, and Cimino conducted a private offering of Global stock and provided investors with offering materials containing many of the same false and misleading statements contained in the press releases. According to the complaint, Global raised approximately $2.1 million through the offering, the majority of which Prichard and Cimino misappropriated for personal use.
The Commission's complaint charges: Global with violating Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 (Securities Act) and Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 10b-5 thereunder; Prichard and Cimino with violating Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder; Mrakuzic and Panella with violating Section 5(a) and 5(c) of the Securities Act and Section 10(b) and Rule 10b-5 thereunder; and Cimini and Bua with violating Section 5(a) and 5(c) of the Securities Act and aiding and abetting violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. In its complaint, the Commission seeks permanent injunctions, disgorgement, prejudgment interest, civil penalties, penny stock bars, and officer and director bars against Prichard, Cimino and Cimini.
Upon the filing of the Commission's complaint, and without admitting or denying the allegations in the complaint, Bua consented to the entry of a final judgment permanently enjoining him from violating Section 5 of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and to a penny stock bar. Bua has agreed to pay disgorgement and civil penalties in an amount to be determined at a later date. [SEC v.Global Development & Environmental Resources, Inc., (U.S. District Court for the Middle District of Florida, Civil Action No.8:08-CV-993-T-27-MAP] (LR-20598)
Former Chairman and CEO of Gemstar-TV Guide International, Inc. Charged With Obstruction of an SEC Investigation
The Commission announced that on May 13, 2008, Henry C. Yuen, the former chairman and chief executive officer of Gemstar-TV Guide International, Inc., was indicted on a felony charge of obstructing a Commission investigation.
The indictment alleges that during an investigation regarding accounting irregularities at Gemstar-TV Guide, the Commission issued a subpoena to Yuen requiring him to produce documents. After receiving the subpoena, Yuen allegedly began deleting from his computer various documents that were called for by the subpoena. In addition, the day before Yuen was scheduled to appear for testimony in the Commission investigation, Yuen allegedly ran a program on his computer that made it impossible to recover the documents he had previously deleted.
The SEC's complaint, filed in June 2003, alleged that from June 1999 through September 2002, Yuen participated in Gemstar's fraudulent overstatement of revenues by at least $248 million to meet its ambitious financial projections. After a three week trial in December 2005, the court found in favor of the Commission and against Yuen on all claims including securities fraud and ordered Yuen, among other things, to pay over $22 million in disgorgement and penalties. On April 1, 2008, the Ninth Circuit affirmed the district court's ruling finding that Yuen committed securities fraud, and found the court ordered disgorgement and penalty against Yuen was appropriate. [U.S. v. Henry C. Yuen, No. CR 08-00567 (C.D. Cal.)] (LR-20599)
SEC v. Icon World Corporation, SUNCO Resources, LLC, Jeffrey M. Zamorsky, Jesse Anthony (Tony) Aguilar, and Christine M. Zamorsky
The Commission announced that on May 22, it filed a civil action in the United States District Court for the District of Colorado based on an ongoing fraudulent scheme conducted by Icon World Corporation (Icon) and SUNCO Resources, LLC (SUNCO). Icon and SUNCO both maintained offices in Colorado Springs, Colorado, and Chandler, Arizona, and acted through their principals Jeffrey Zamorsky, a resident of Queens Creek, Arizona; Jesse Anthony (Tony) Aguilar, a resident of Houston, Texas; and Christine Zamorsky, a resident of Castle Rock, Colorado.
According to the Complaint, the defendants defrauded investors by selling them interests in oil and gas wells that Icon and SUNCO did not own and never acquired. Among other things, Icon and SUNCO allegedly misrepresented that offering proceeds would be used to fund the development or completion of these wells. The defendants also allegedly failed to disclose the criminal histories of Tony Aguilar and Christine Zamorsky, both of whom were involved in a prior oil and gas offering fraud in Texas. The Complaint alleges that, from approximately May 2007 through the present, the defendants raised more than $1 million from investors in the Icon and SUNCO offerings. Jeffrey Zamorsky, Tony Aguilar, and Christine Zamorsky allegedly solicited sales of these interests through sales representatives who cold-called prospective investors nationwide. The Complaint further alleges that Icon and SUNCO's offerings were not registered with the Commission, nor were Jeffrey Zamorsky, Tony Aguilar, or Christine Zamorsky associated with a registered broker-dealer.
The Complaint claims that, based on this conduct, all of the defendants violated Sections 5(a), 5(c) and 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. The Complaint also claims that Jeffrey Zamorsky, Tony Aguilar, and Christine Zamorsky violated Exchange Act Section 15(a). On the Commission's application, the Court issued a Temporary Restraining Order and Order Setting Hearing Concerning Preliminary Injunction Motion (Order) on May 23. Among other things, the Court's Order froze the defendants' assets that were derived from the conduct alleged in the Complaint pending determination of the Commission's Motion for a Preliminary Injunction. [SEC v. Icon World Corporation, SUNCO Resources, LLC, Jeffrey M. Zamorsky, Jesse Anthony (Tony) Aguilar, and Christine M. Zamorsky (United States District Court for the District of Colorado, Civil Action No. 08-cv-01088-MSK-CBS)] (LR-20600A)
INVESTMENT ADVISERS ACT RELEASES
Slick Enterprises, Inc.
A notice has been issued giving interested persons until June 20, 2008, to request a hearing on an application filed by Slick Enterprises, Inc. for an order under Section 202(a)(11)(G) of the Investment Advisers Act . The order would declare Slick Enterprises, Inc. to be a person not within the intent of Section 202(a)(11) of the Advisers Act, which defines the term "investment adviser." (Rel. IA-2736 - May 22)
INVESTMENT COMPANY ACT RELEASES
Thrivent Mutual Funds, et al.
An order has been issued on an application filed by Thrivent Mutual Funds, 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-28267 - May 20)
Deregistrations Under the Investment Company Act
Orders have been issued under Section 8(f) of the Investment Company Act of 1940 declaring that each of the following has ceased to be an investment company:
Matrix Capital Group, Inc. and Matrix Defined Trusts
A notice has been issued giving interested persons until June 16, 2008, to request a hearing on an application filed by Matrix Capital Group, Inc. (Matrix) and Matrix Defined Trusts for an order: (a) under Section 6(c) of the Investment Company Act for exemptions from Sections 2(a)(32), 2(a)(35), 22(d) and 26(a)(2)(C) of the Act and Rule 22c-1 thereunder to permit certain unit investment trusts to impose sales charges on a deferred basis and waive the deferred sales charge in certain cases; (b) under Sections 11(a) and 11(c) of the Act to approve certain exchange and rollover privileges; (c) under Section 6(c) of the Act for an exemption from Section 14(a) of the Act to permit the unit investment trust series to publicly offer their units without Matrix having to take for its own account or place with others $100,000 worth of units; and (d) under Section 6(c) of the Act for an exemption from Section 19(b) of the Act and Rule 19b-1 thereunder to permit the series to distribute capital gains resulting from the sale of portfolio securities within a reasonable time after receipt. (Rel. IC-28284 - May 22)
Immediate Effectiveness of Proposed Rule Change
The NASDAQ Stock Market filed a proposed rule change (SR-NASDAQ-2008-031) pursuant to Section 19(b)(1) of the Act that will require foreign private issuers be eligible to participate in a Direct Registration System administered by a clearing agency registered under Section 17A of the Act unless the law or regulations in the issuer's home country prohibit compliance with the proposed rule. Publication is expected in the Federal Register during the week of May 26. (Rel. 34-57842)
Accelerated Approval of Proposed Rule Change
The Commission granted accelerated approval to a proposed rule change submitted by the Philadelphia Stock Exchange (SR-Phlx-2008-39) under Rule 19b-4 of the Securities Exchange Act of 1934 relating to permanent approval of the Exchange's Directed Order program. Publication is expected in the Federal Register during the week of May 26. (Rel. 34-57844)
Approval of Proposed Rule Change
The Commission approved a proposed rule change (SR-ISE-2008-29) submitted by the International Securities Exchange pursuant to Rule 19b-4 under the Securities Exchange Act of 1934 relating to the Price Improvement Mechanism. Publication is expected in the Federal Register during the week of May 26. (Rel. 34-57847)
JOINT INDUSTRY PLAN RELEASES
Temporary Approval of a Proposed Amendment to the Plan for the Purpose of Developing and Implementing Procedures Designed to Facilitate the Listing and Trading of Standardized Options
The American Stock Exchange, the Boston Stock Exchange, Chicago Board Options Exchange, the International Securities Exchange, The NASDAQ Stock Market, NYSE Arca, the Philadelphia Stock Exchange and the Options Clearing Corporation filed with the Securities and Exchange Commission, pursuant to Section 11A of the Securities Exchange Act of 1934 and Rule 608 thereunder, Amendment 1 to the Plan for the Purpose of Developing and Implementing Procedures Designed to Facilitate the Listing and Trading of Standardized Options (File No. 4-443). Publication is expected in the Federal Register during the week of May 26. (Rel. 34-57848)
SECURITIES ACT REGISTRATIONS
RECENT 8K FILINGS