Luis A. Aguilar Sworn in as SEC Commissioner
as SEC Commissioner
Today, Luis A. Aguilar was sworn in as a Commissioner of the Securities and Exchange Commission.
Appointed by President George W. Bush on June 30, 2008, Commissioner Aguilar was sworn in by his longtime friend and law school colleague, Chief Judge Matthew O. Simmons of the Superior Court of the Clayton, Ga., Judicial Circuit, during a ceremony held at the SEC's Atlanta Regional Office where he once worked.
Prior to being appointed to the Commission, Aguilar worked as a partner in the Atlanta office of international law firm McKenna Long & Aldridge LLP, where among other things he focused on corporate governance, public and private offerings, mutual funds, investment advisers and broker-dealers, and other aspects of federal and state securities laws and regulations. Commissioner Aguilar served as a staff attorney during his previous tenure at the SEC from April 1979 to January 1982.
SEC Chairman Christopher Cox said, "The wealth of talent and experience that Commissioner Aguilar brings to the Commission will be invaluable as we move forward with our busy agenda to further enhance investor protections, facilitate capital formation in our economy, and improve financial markets regulation. It is a pleasure to welcome him back to the SEC."
Commissioner Aguilar said, "It is a great privilege to work once again with the SEC, where I began my legal career. I am honored to have this opportunity to serve the investing public and capital markets. I view this as a wonderful challenge and I look forward to fulfilling my responsibilities. I recognize the important trust I hold."
Commissioner Aguilar also has demonstrated a remarkable commitment to community service, devoting countless hours to numerous charitable causes. In 2007, he received the Justice Robert Benham Award for Community Service from the Chief Justice's Commission on Professionalism of the Supreme Court of Georgia. He also was named one of the "100 Influential" Hispanics in the U.S. in 2006 by Hispanic Business Magazine, and was named the Latino Attorney of the Year for 2005 by the Hispanic National Bar Association.
Commissioner Aguilar received his B.S. from Georgia Southern University in 1976, and his J.D. from the University of Georgia School of Law in 1979. He also received a master of laws degree in taxation from Emory University in 1985. (Press Rel. 2008-161)
Zoe-Vonna Palmrose to Return to USC Professorship, Completing SEC Service as Deputy Chief Accountant
The Securities and Exchange Commission announced today that Dr. Zoe-Vonna Palmrose will return to the University of Southern California as a Professor of Accounting in the Marshall School of Business and Leventhal School of Accounting, concluding her two years of successful public service as the agency's Deputy Chief Accountant for Professional Practice.
As Deputy Chief Accountant, Dr. Palmrose played a key role in nearly all aspects of the Commission's work related to overseeing the activities of the Public Company Accounting Oversight Board (PCAOB), managing the resolution of audit independence issues and ethical matters, monitoring audit and independence standard-setting internationally, and observing the Department of Treasury's Advisory Committee on the Auditing Profession.
"I am personally very grateful to Dr. Palmrose for dedicating her energies and expertise to the cause of investor protection, and to USC for supporting her in doing so," said SEC Chairman Christopher Cox. "Her extensive experience and groundbreaking work in the accounting and academic worlds enabled her to bring an exceptionally informed perspective to our Office of the Chief Accountant. As expected, she has done a remarkable job in leading our national effort to ensure that public companies adhere to internal controls and provide their investors with quality financial information that they can rely on and understand. Her service to our nation during these past two years has been outstanding."
Dr. Palmrose said, "I am very proud of all that the Professional Practice Group has accomplished over the last two years, including the group's efforts to improve the implementation of SOX Section 404. It has been a special privilege to work with the Commission and its outstanding staff. I am very grateful to Chairman Cox for having had this opportunity to serve investors in our markets."
Next week, at the American Accounting Association's annual convention in Anaheim, California, Dr. Palmrose will deliver the AAA Presidential Scholar's Address: "Science, Politics, and Accounting: A View from the Potomac."
Prior to serving as a Deputy Chief Accountant at the SEC, Dr. Palmrose was the PricewaterhouseCoopers Professor of Auditing at the University of Southern California. Prior to joining USC, she was on the faculty at the University of California at Berkeley.
Dr. Palmrose has published and spoken extensively on a variety of issues related to the quality of financial reporting and auditing, including restatements, regulation of the profession, and audit litigation. Her public service also includes membership on the Public Oversight Board's Panel on Audit Effectiveness, the American Institute of Certified Public Accountants' Auditing Standards Board Fraud Task Force, and the AICPA Antifraud Program and Controls Task Force.
Dr. Palmrose received her B.S. from Oregon State University, and her MBA and Ph.D. from the University of Washington. She has worked in public accounting and private industry. (Press Rel. 2008-162)
SEC Suspends Trading in the Stock of Global Diamond Exchange, Inc.
Today, the Securities and Exchange Commission announced the temporary suspension, pursuant to Section 12(k) of the Securities Exchange Act of 1934 (the "Exchange Act"), of trading in the securities of Global Diamond Exchange, Inc., at 9:30 a.m. EDT, July 31, 2008, through 11:59 p.m. EDT, on August 13, 2008.
The Commission temporarily suspended trading in these securities because there is a lack of current and accurate information concerning its securities. Questions have arisen concerning the company's current business operations, control of the company, and the company's reliance on Rule 504 of Regulation D of the Securities Act of 1933 in conducting a distribution of its securities.
The Commission cautions brokers, dealers, shareholders, and prospective purchasers that they should carefully consider the foregoing information along with all other currently available information and any information subsequently issued by the company.
Further, brokers and dealers should be alert to the fact that, pursuant to Rule 15c2-11 under the Exchange Act, at the termination of the trading suspension, no quotation may be entered unless and until they have strictly complied with all of the provisions of the rule. If any broker or dealer has any questions as to whether or not it has complied with the rule, it should not enter any quotations but immediately contact the staff in the Division of Trading and Markets, Office of Interpretation and Guidance, at (202) 551-5760. If any broker or dealer is uncertain as to what is required by Rule 15c2-11, it should refrain from entering quotations relating to the securities of Global Diamond Exchange, Inc. until such time as it has familiarized itself with the rule and is certain that all of its provisions have been met. If any broker or dealer enters any quotation which is in violation of the rule, the Commission will consider prompt enforcement action. (Rel. 34-58271)
In the Matter of Lexington Resources, Inc., Grant Atkins and Gordon Brent Pierce
The Commission announced the issuance of an Order Instituting Cease-and-Desist Proceedings Pursuant to Section 8A of the Securities Act of 1933 and Section 21C of the Securities Exchange Act of 1934 (Order) against Lexington Resources, Inc. (Lexington), based in Las Vegas, NV; Lexington CEO and Chairman Grant Atkins (Atkins), 48, of Vancouver, Canada; and Gordon Brent Pierce (Pierce), 51, also of Vancouver, Canada.
The Division of Enforcement alleges in the Order that Lexington and Atkins issued over 5 million shares of Lexington stock to Pierce and Pierce's business associates, who then commenced a massive spam and newsletter campaign to promote the stock, more than doubling Lexington's stock price and allowing Pierce to net millions of dollars when he sold his shares to the public. According to the allegations, these parties failed to register their stock sales, avoiding the public disclosures and other investor protections of the federal securities laws. Instead, the Order alleges, Lexington improperly relied on a short-form registration statement, Form S-8, which is reserved for certain employees and consultants and expressly prohibits use by stock promoters.
The Division of Enforcement alleges that Lexington, Atkins and Pierce violated the registration provisions of Sections 5(a) and 5(c) of the Securities Act of 1933, and that Pierce violated the stock ownership reporting provisions of Sections 13(d) and 16(a) of the Securities Exchange Act of 1934 and Rules 13d-1, 13d-2 and 16a-3 thereunder.
An administrative hearing will be scheduled to determine whether the allegations in the Order are true, and to provide Lexington, Atkins and Pierce an opportunity to establish any defenses to the allegations. The proceedings also will determine whether remedial actions are appropriate. As directed by the Commission, the administrative law judge shall issue an initial decision in this matter no later than 300 days from the date of service of the Order. (Rel. 33-8948; 34-58270; File No. 3-13109)
Final Judgment Setting Disgorgement and Civil Penalty Entered Against Defendants Donald E. Secunda, Larry Webman, and Melvin Webamn
The Commission announced that on May 2, 2008, the United States District Court for the Southern District of Florida entered a Final Judgment Setting Disgorgement and Civil Penalty against Defendants Donald Secunda, Larry Webman, and Melvin Webman. The Final Judgment orders Secunda to pay disgorgement in the amount of $392,259.15 plus prejudgment interest of $10,529.98, orders Larry Webman to pay disgorgement of $273,500 plus prejudgment interest of $11,049.40, and orders Melvin Webman to pay disgorgement of $459,918.13 plus prejudgment interest of $18,580.69. The Final Judgment also orders Secunda to pay a civil penalty of $80,000, and Larry and Melvin Webman are each ordered to pay a $120,000 civil penalty.
The Court previously entered Judgments of Permanent Injunction and other Relief by consent, against Secunda and Larry and Melvin Webman. [SEC v. U.S. Gas & Electric, Inc., et al., Civil Action No. 06-22440-CIV-LENARD, SDFL] (LR-20661)
Stock Trader Recieves 36 Month Sentence for Orchestrating Wash Sales and Matched Orders in Spam-Fueled Pump-and-Dump Schemes
The Commission today announced that on July 25, 2008, Lawrence Kaplan was sentenced by the Hon. Gerald Bruce Lee of the Eastern District of Virginia to 36 months of incarceration for conspiracy to commit securities fraud, with 12 months to be served in community confinement. Kaplan was also ordered to pay restitution to the victims of his crime in the amount of $7,333,384.21.
On July 25, 2007, Kaplan pleaded guilty to one count of conspiracy to commit securities fraud. The criminal case was prosecuted by the U.S. Attorney's Office for the Eastern District of Virginia. In a related case, on September 17, 2007, the Commission filed a complaint in U.S. District Court for the Eastern District of Virginia, alleging that, over the past four years Kaplan and Mesa, Arizona-based recidivist securities law violator Michael Saquella, a.k.a., Michael Paloma, conducted an elaborate market manipulation scheme that involved unlawfully taking public seven microcap companies, artificially inflating their share prices, and dumping millions of shares into the public market. On March 14, 2008, Saquella was sentenced to serve ten years in federal prison for orchestrating the scheme.
According to the Commission's complaint, Saquella repeatedly circumvented the registration requirements of the federal securities laws in order to obtain large blocks of purportedly free trading shares. With the "free trading shares" in hand, Saquella and Kaplan coordinated wash sales and matched orders to artificially inflate the price of each issuer's stock while also creating the appearance of an active trading market. Saquella then coordinated the dissemination of millions of false and/or misleading blast fax and spam e-mails touting the companies' shares. Kaplan realized profits of some $677,632 by dumping shares of the microcap issuers into the public market at prices artificially inflated by his manipulative trading as well as the spam campaigns. The Commission alleged that Saquella carried out versions of this scheme using the shares of Courtside Products, Inc., Latin Heat Entertainment, Inc., Xtreme Technologies, Inc., PokerBook Gaming Corp., Commanche Properties, Inc., TKO Holdings Ltd. and Motion DNA Corp.
In the Commission's action, Kaplan consented to the entry of a final judgment (1) permanently enjoining him 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; (2) imposing a penny stock bar against him; and (3) directing that he disgorge $677,632 in unlawful profits, plus prejudgment interest of $121,127. (LR-20662)
Federal Judge Permanently Enjoins Three Defendants and Three Penny Stock Issuers in Pump and Dump Price Manipulation Scheme
The Commission announced that on July 16, 2008, the Honorable Dean D. Pregerson, United States District Judge for the Central District of California, entered final judgments against defendants Stephen Luscko, age 40, formerly of Sarasota, Florida; Gregory Neu, age 32, formerly of Miami, Florida; Justin Medlin, age 27, formerly of San Diego, and China Score, Inc., a Las Vegas based business. The judgments permanently enjoin defendants Neu, Luscko, and China Score from committing future violations of the securities registration provisions of the federal securities laws, and the judgments as to Luscko, Neu, and Medlin enjoin them from committing future violations of the securities antifraud provisions of the federal securities laws. The judgments also bar Luscko, Neu, and Medlin from participating in any penny stock offering, and enjoin Luscko and Neu from conducting unregistered securities offerings. Luscko, Neu, Medlin, and China Score each consented to the entry of the judgment against them without admitting or denying any of the allegations in the Commission's complaint.
Additionally, the Court entered final judgments against defendants Emerging Holdings, Inc. and Massclick, Inc., permanently enjoining both companies from committing future violations of the securities registration provisions of the federal securities laws. On October 26, 2007, the Clerk of the Court entered the defaults of both Emerging Holdings and Massclick upon their failure to answer or otherwise respond to the Commission's complaint. Finally, the Court dismissed relief defendant Marc Primo Pulisci from the Commission's action. The final judgments entered by the Court effectively concluded the litigation in this matter.
The Commission's complaint, filed on April 27, 2007, alleged that, between March and August 2004, the defendants artificially inflated the stock price and trading volume of certain companies whose stock traded on the over-the-counter market. The complaint alleged that defendants Luscko and Neu formed four companies, including defendants Emerging Holdings, Massclick and China Score, as well as another entity that is now defunct, and then recruited friends and business associates to act as company officers. According to the complaint, Luscko and Neu arranged for these companies to transfer millions of shares of stock to their own or their friends' brokerage accounts in a series of sham transactions designed to bypass Commission regulations that required the shares to be restricted from being resold into the open market. The complaint also alleged that Luscko and Neu drafted false and misleading spam e-mails that were edited by defendant Medlin. Further, the complaint alleged that Medlin embarked on a weekend spam e-mail campaign, bombarding the investing public with millions of spam e-mails that generated significant investor interest and resulted in rapid increases in the companies' stock price and volume. The Commission further alleged that, having "pumped" up the companies' stock prices, Luscko and Neu then, directly or through their friends, "dumped" their shares into the open market, and the companies' stock prices declined rapidly thereafter. As a result of trades made in these four stocks, Luscko, Neu, and Medlin netted $6.5 million.
The Court permanently enjoined Luscko, Neu, Emerging Holdings, Massclick, and China Score from violating the securities registration provisions of Sections 5(a) and 5(c) of the Securities Act of 1933. Luscko, Neu, and Medlin were also enjoined from violating the antifraud provisions of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. Finally, Medlin was enjoined from violating the anti-touting provisions of Section 17(b) of the Securities Act.
In a related criminal action, the U.S. Department of Justice and the U.S. Attorney for the Eastern District of Virginia previously filed charges against Luscko, Neu, and Medlin, all of whom pled guilty to conspiring to commit securities fraud and e-mail fraud. Neu was sentenced to five years' imprisonment and three years' supervised release. Luscko was sentenced to five years' imprisonment and two years' supervised release. Medlin was sentenced to six years' imprisonment and three years' supervised release. The criminal authorities have seized approximately $3,700,000 from bank accounts associated with Luscko, Neu, and Medlin. [SEC v. Stephen Luskco, Gregory Neu, Justin Medlin, Emerging Holdings, Inc., Massclick, Inc., And China Score, Inc., Case No. SACV 07-2783 DDP (AGRx) (C.D. Cal.)] (LR-20663)
STANDARDS SETTING BOARDS
The Commission is publishing for public comment the Public Company Accounting Oversight Board's proposed new Auditing Standard No. 6, Evaluating Consistency of Financial Statements, and Conforming Amendments. Publication of the proposed rule is expected in the Federal Register during the week of August 4th. The comment period will end 21 days after the proposed rule is published in the Federal Register. (Rel. 34-58259)
Immediate Effectiveness of Proposed Rule Change
A proposed rule change filed by the Philadelphia Stock Exchange, (SR-Phlx-2008-55) relating to an extension of pilot programs in connection with Linkage P/A orders 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 August 4. (Rel. 34-58234)
A proposed rule change (SR-ISE-2008-61) filed by the International Securities Exchange relating to non-customer options orders 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 August 4. (Rel. 34-58237)
A proposed rule change (SR-CBOE-2008-73) filed by the Chicago Board Options Exchange to make permanent the customer portfolio margin program 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 August 4. (Rel. 34-58243)
A proposed rule change filed by the New York Stock Exchange to eliminate the exceptional messaging fee (SR-NYSE-2008-64) 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 August 4. (Rel. 34-58246)
A proposed rule change (SR-FINRA-2008-041) filed by the Financial Industry Regulatory Authority relating to making the portfolio margin pilot permanent 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 August 4. (Rel. No. 34-58251)
Proposed Rule Change
The New York Stock Exchange has filed a proposed rule change (SR-NYSE-2008-59) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 to reduce the period within which companies must issue a press release after the Exchange notifies them that they are noncompliant with Exchange listing requirements. Publication is expected in the Federal Register during the week of August 4. (Rel. 34-58235)
The Financial Industry Regulatory Authority has filed a proposed rule change and Amendment No. 1 thereto (SR-FINRA-2008-029) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 and Rule 19b-4 thereunder, to repeal NASD Rule 1130 and Incorporated NYSE Rules 405A, 440F, 440G and 477 as part of the process of developing the Consolidated FINRA Rulebook. Publication is expected in the Federal Register during the week of August 4. (Rel. 34-58244)
The New York Stock Exchange has filed a proposed rule change (SR-NYSE-2008-57) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 to adopt on a permanent basis a pilot program which allows the Exchange to adjust the earnings of companies for purposes of its earnings standard by reversing the income statement effects of changes in fair value of financial instruments extinguished at the time of listing. Publication is expected in the Federal Register during the week of August 4. (Rel. 34-58253)
The Commission issued a notice of filing of a proposed rule change by the Municipal Securities Rulemaking Board pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934, relating to the Establishment of a Continuing Disclosure Service of the Electronic Municipal Market Access System (EMMA) (SR-MSRB-2008-05). Publication is expected in the Federal Register during the week of August 4. (Rel. 34-58256)
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