UBS Securities LLC and UBS Financial Services, Inc. Agree in Principle to Auction Rate Securities Settlement
Firm Will Provide Liquidity and Remediate Losses
On August 8, the Securities and Exchange Commission's Division of Enforcement announced a preliminary settlement in principle with UBS Securities LLC and UBS Financial Services, Inc. (collectively, UBS) including proposed charges and a plan that would restore approximately $22 billion in liquidity to its customers who invested in auction rate securities (ARS). This plan includes approximately $8.2 billion for individual investors, small businesses, and charitable organizations, $3.3 billion for holders of tax-exempt Auction Preferred Shares (subject to regulatory review), and $10.3 billion for institutional investors.
The ARS market collapsed in mid-February 2008, leaving over 40,000 UBS customers holding these illiquid securities indefinitely. The conduct underlying the proposed charges stems from UBS's marketing of auction rate securities as cash alternatives. However, the liquidity of these securities was premised on UBS providing support bids for auctions it managed when there was not enough customer demand, but this was not adequately disclosed to customers. When UBS stopped supporting auctions in February 2008, it led to widespread auction failures for UBS customers.
Linda Chatman Thomsen, Director of the SEC's Division of Enforcement, said, "The Division's agreement in principle with UBS, if approved by the Commission, will quickly restore liquidity to tens of thousands of UBS investors. In a short time, approximately 31,300 individual, charitable, and small business investor accounts will receive more than $8.2 billion in liquidity, and approximately 9,200 investor accounts holding tax-exempt Auction Preferred Shares will receive nearly $3.3 billion in liquidity. UBS also will begin the process of restoring $10.3 billion in liquidity to approximately 1,000 institutional investor accounts."
The terms of the agreement in principle, which are subject to finalization, review and approval by the Commission, provide:
The Commission notes the substantial assistance and cooperation from the New York Attorney General, FINRA, and the North American Securities Administrators Association.
The Commission's investigation is continuing as to individuals and other entities that participate in the auction rate securities market.
Contacts: Fredric Firestone, (202) 551-4711 or Kenneth R. Lench, (202) 551-4938
(Press Rel. 2008-171)
SEC Announces Distribution of $48 Million to Defrauded Vivendi Universal Investors
The Securities and Exchange Commission today announced the distribution of more than $48 million to more than 12,000 investors who were victims of fraudulent financial reporting by media conglomerate Vivendi Universal, S.A. Investors receiving checks reside in the United States and in 15 other countries. More than half bought heir Vivendi stock on foreign exchanges and are receiving their Fair Fund distribution in euros.
"Today we are able to provide financial remediation to investors who were misled by Vivendi's false financial reporting," said David Nelson, Regional Director of the Commission's Miami Regional Office. "I am particularly gratified that we have been able to identify and help investors not just in this country, but overseas as well."
Dick D'Anna, Director of the SEC's Office of Collections and Distributions, said, "This distribution highlights the continued efforts and increased capacity of the Commission to repay injured investors, regardless of their physical location and their currency of choice. Our ongoing focus will be to improve our assistance to these investors."
The Commission filed a settled enforcement action in December 2003 against Vivendi, its former CEO Jean-Marie Messier, and its former CFO, Guillaume Hannezo, alleging violations of the antifraud and other provisions of the federal securities laws. Among other things, the Commission alleged that the defendants engaged in antifraud violations by making misleading statements about Vivendi's financial condition. According to the Commission's complaint, the defendants engaged in misconduct that disguised Vivendi's cash flow and liquidity problems, improperly adjusted accounting reserves to meet earnings targets, and failed to disclose material financial commitments.
As part of their settlement, which was without admitting or denying the Commission's allegations, the defendants agreed to certain financial relief. Vivendi agreed to pay a $50 million civil money penalty and disgorgement of $1. Messier agreed to pay a $1 million civil penalty and disgorgement of $1, and Hannezo agreed to pay disgorgement and a civil money penalty totaling more than $250,000. The Fair Funds being distributed today come from all of those financial payments. In addition to that relief, Messier also agreed to forfeit a severance package of about 21 million euros.
In the Fair Funds provisions of the Sarbanes-Oxley Act of 2002, Congress gave the Commission increased authority to distribute ill-gotten gains and civil money penalties to harmed investors. To date, the Commission has returned more than $4 billion to investors since 2002.
Of the 12,115 investors receiving checks, approximately 5,300 are from the United States or receiving claims in dollars. The remaining 6,800 claimants are from 15 countries, including more than 3,300 claimants who bought shares on the Paris Stock Exchange. They will receive checks in Euros. The distribution agent in the case hopes to make a second, smaller distribution in the future.
Questions regarding the Fair Fund distribution may be directed to the Court-appointed distribution agent, Jeffrey Sklaroff, Esq., by:
(Press Rel. 2008-172)
Closed Meeting - August 8, 2008 - 11:30 a.m.
The Commission held a closed meeting on August 8, 2008. The matters discussed were: institution and settlement of injunctive actions; and other matters related to enforcement proceedings.
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 Acclaim Entertainment, Inc.
An Administrative Law Judge has issued an Order Making Findings and Revoking Registrations by Default (Default Order) in the matter of Acclaim Entertainment, Inc. The Order Instituting Proceedings alleged that Acclaim Entertainment, Inc., Family Golf Centers, Inc., Graham-Field Health Products, Inc., Lechters, Inc., and Texfi Industries, Inc., each failed repeatedly to file required annual and quarterly reports while their securities were registered with the Securities and Exchange Commission.
The Default Order finds these allegations to be true and revokes the registrations of each class of registered securities of all five Respondents pursuant to Section 12(j) of the Securities Exchange Act of 1934. (Rel. 34-58336; File No. 3-13078)
In the Matter of Timothy J. Ward
On August 11, the Commission issued an Order Instituting Public Administrative Proceedings Pursuant to Section 15(b)of the Securities Exchange Act of 1934, Making Findings and Imposing Remedial Sanctions (Order) against Timothy J. Ward. The Order finds that on July 16, 2008, a judgment was entered by consent against Ward, permanently enjoining him from future violations of Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder; aiding and abetting future violations of Section 15(c)(3) of the Exchange Act and Rule 15c3-3 thereunder; and aiding and abetting future violations of Section 17(a) of the Exchange Act and Rule 17a-3 thereunder, in the civil action entitled SEC v. North American Clearing, Inc., et al., Civil Action Number 6:08-cv-829-ORL-28GJK, in the United States District Court for the Middle District of Florida.
Based on the above, the Order bars Ward from association with any broker or dealer. Ward consented to the issuance of the Order without admitting or denying any of the findings in the Order, except he admitted the entry of the injunction. (Rel. 34-58337; File No. 3-13124)
In the Matter of James M. Jordan
On August 11, 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 James M. Jordan. The Order finds that on May 5, 2008, a Final Judgment as To James M. Jordan was entered against Jordan permanently enjoining him from future violations of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, Sections 10(b) and 15(a) of the Exchange Act and Rule 10b-5 thereunder, in the civil action entitled SEC v. William P. Sauer, James M. Jordan and Phil D. Kerley, Civil Action Number 1:02-CV-2191, in the United States District Court for the Northern District of Georgia. The Commission's complaint alleged that, in connection with the unregistered sale of investment contracts, from September 1998 until September 2000, Jordan, through a company that he controlled, used independent sales agents to sell more than $84 million of ETS payphone investments. Similarly, from November 1999 through June 2000, Jordan, through his company and another entity that he controlled, sold more than $10 million of the GTS investments. According to the complaint, the ETS and GTS investment agreements were substantially similar in structure, although each investment had a different purchase price and promised investors a slightly different return varying from 14 percent to 15 percent. The complaint alleged that Jordan knew, or was severely reckless in failing to discover, that ETS and GTS were functioning as Ponzi schemes. The Commission's complaint also alleged that Jordan knew, or was severely reckless in not knowing, that his representations that ETS and GTS were safe investments and that ETS and GTS were profitable companies, were false. The complaint also alleged that by virtue of his conduct, Jordan engaged in business as a broker-dealer and induced and attempted to induce the purchase and sale of securities. Jordan was not registered with the Commission as a broker or dealer, and was not associated with any broker or dealer.
Based on the above, the Order bars James M. Jordan from association association with any broker or dealer. Jordan consented to the issuance of the Order without admitting or denying any of the findings in the Order. (Rel. 34-58338; File No. 3-13125)
SEC Charges Participants in Fraudulent Scheme to Manipulate Stock and Evade Registration Requirements and Settles Charges Against Attorney
On August 8, the Commission charged Alliance Transcription Services, Inc. and others in connection with a scheme to manipulate Alliance's stock price and trading volume through false and misleading public disclosures and to issue and sell Alliance's common stock in an unregistered distribution. Alliance is a Nevada corporation, formerly known as Strategy X, Inc., that was headquartered in the State of Maine from at least December 2004 through August 2007, and is now located in Ranch Palos Verdes, California. Also charged for various roles in the scheme were Clifford A. Lewis of Huntsville, Alabama; Richard A. Dabney of Rancho Palos Verdes, California; Raymond C. Dabney of Vancouver, British Columbia; Philip M. Young of Phoenix, Arizona; Charles J. Smith of Reno, Nevada; and William D. O'Neal of Fountain Hills, Arizona. The Commission settled charges against O'Neal, an attorney who allegedly issued a series of legal opinions that enabled Alliance to illegally issue purportedly unrestricted shares of its stock in unregistered transactions. O'Neal agreed to pay more than $220,000 in disgorgement of ill-gotten gains, prejudgment interest and civil penalties, and to be prohibited from issuing similar legal opinions in the future or accepting securities of Pink Sheets issuers in consideration for legal services.
According to the Commission's complaint, filed in the United States District Court for the District of Arizona, Alliance, Richard Dabney, and Lewis manipulated the market for Alliance's stock by issuing press releases that made false and misleading claims about the company's contracts and revenues. The complaint alleges that the press releases issued by Alliance were published through business newswire services and on Alliance's website from at least April 2005 through at least September 2006.
The Commission's complaint further alleges that, from July 2005 to September 2006, Alliance, Richard Dabney, Raymond Dabney, Young, Smith, and O'Neal participated in an unregistered distribution of Alliance securities through a series of purported stock offerings by Alliance to North American Funding, Inc. (NAF), a Texas corporation controlled by Smith. According to the complaint, Raymond Dabney, Young, and Smith arranged for Alliance to issue stock to NAF in offerings that purportedly were exempt from registration. The complaint alleges that, in fact, the transactions between Alliance and NAF were not exempt from registration and were merely a device to evade the registration provisions of the federal securities laws. According to the Commission's complaint, the stock was immediately distributed to third parties and sold into the market, without being paid for by NAF. Richard Dabney, an officer and director of Alliance, and O'Neal enabled Alliance to engage in those transactions by providing the necessary corporate resolutions and legal opinions, respectively. The Commission's complaint also alleges that Young, Smith, and O'Neal received some of the Alliance stock through the unregistered distribution and sold it into the market without registration or a valid exemption from registration. According to the complaint, Lewis, Richard Dabney, and Raymond Dabney received a portion of the proceeds that Young obtained by selling the Alliance stock.
The Commission's complaint charges Alliance, Lewis, and Richard Dabney with violating the antifraud provisions of the federal securities laws (Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder) and charges Alliance, Richard Dabney, Raymond Dabney, Young, Smith, and O'Neal with violating the securities registration provisions of the federal securities laws (Section 5 of the Securities Act of 1933 (Securities Act)). In its complaint, the Commission seeks permanent injunctions against all the defendants, disgorgement plus prejudgment interest and civil monetary penalties against Lewis, Richard Dabney, Raymond Dabney, Young, Smith, and O'Neal, officer and director bars against Lewis and Richard Dabney, and penny stock bars against Lewis, Richard Dabney, Raymond Dabney, Young, and Smith.
The Commission previously issued an Order on Oct. 4, 2007, suspending trading in the securities of Alliance.
Upon the filing of the Commission's complaint, and without admitting or denying the allegations in the complaint, O'Neal consented to the entry of a final judgment permanently enjoining him from violating Section 5 of the Securities Act, ordering him to pay disgorgement of $163,246.22 and prejudgment interest of $33,000.78 plus a civil penalty of $25,000. In addition, the final judgment prohibits O'Neal from issuing any legal opinions to the effect that unregistered offerings are exempt from SEC registration under Rule 504 of Regulation D under the Securities Act and that securities issued in such Rule 504 offerings are unrestricted. The final judgment also prohibits O'Neal from accepting securities of any Pink Sheets issuer in consideration for legal or consulting services rendered. [SEC v. Alliance Transcription Services, Inc., Clifford A. Lewis, Richard A. Dabney, Raymond C. Dabney, Philip M. Young, Charles J. Smith, and William D. O'Neal, 2:08-CV-01464-NVW (District of Arizona))] (LR-20676)
Defendants in SEC Enforcement Action Sentenced in Federal Court on Related Criminal Charges
The Commission announced today that on Aug. 7, 2008, Christian Rochon, a defendant in a previously-filed Commission enforcement action, was sentenced in U.S. District Court for the District of Massachusetts based on his June 4, 2007 guilty plea to related criminal charges of mail fraud, conspiracy and money laundering in connection with a fraudulent investment scheme. Rochon was sentenced to 5 years probation, with the first year to be served in home confinement.
Two other defendants in the Commission's action had previously been sentenced on charges of mail fraud, conspiracy and money laundering in the related criminal action. On Nov. 28, 2007, James Bunchan was sentenced to 35 years in prison and Seng Tan was sentenced to 20 years in prison. The United States Attorney for the District of Massachusetts had obtained indictments against Bunchan and Tan on Jan. 5, 2006 and both defendants were convicted on June 27, 2007 after a criminal trial.
The Commission filed its complaint against Bunchan, Tan, Rochon and two corporate defendants, WMDS, Inc. and OneUniverseOnline, Inc., on Nov. 16, 2005, alleging that they operated a fraudulent investment scheme that targeted Cambodian immigrants and that purported to guarantee returns for future generations. The complaint alleged that the defendants emphasized their shared Cambodian heritage with their victims, and written solicitation documents drew a parallel between investing in WMDS and fulfilling the American dream, stating that WMDS "urges you to sign up now or you will miss your best chance of fulfilling your American dream." In fact, according to the complaint, the defendants were operating a fraudulent pyramid scheme and ceased making the promised monthly payments. On Jan. 24, 2006, the Commission amended its complaint to add Bunchan's former wife as a relief defendant. The Commission's case is pending as to all defendants. [U.S. v. Bunchan et al. (Criminal Action No. 06-10004-RGS) (D.Mass); SEC v. WMDS, Inc. et al. (Civil Action No.05-12268-RCL) (D. Mass)] (LR-20677)
SEC Charges Defendants in $255 Million Ponzi-Type Scheme Involving Wextrust Capital, LLC and Other Wextrust Entities
The United States Securities and Exchange Commission today filed charges against Wextrust Capital, LLC (Wextrust), its principals, and four affiliated Wextrust entities, alleging that defendants conducted a massive Ponzi-type scheme from 2005 or earlier that raised approximately $255 million from approximately 1,200 investors. The targets of the fraudulent offerings are primarily members of the Orthodox Jewish community. Simultaneously with the filing of the action, the Commission is seeking emergency relief from the Court to freeze the defendants' assets and place the Wextrust entities under the control of a receiver to safeguard assets. The Commission is also seeking a temporary restraining order to stop the ongoing offerings and other immediate relief.
The Commission's complaint, filed in federal court in Manhattan, charges that Wextrust, its principals Steven Byers and Joseph Shereshevsky, and its affiliated entities Wextrust Equity Partners, LLC (WEP), Wextrust Development Group, LLC (WDG), Wextrust Securities, LLC (Wextrust Securities) and Axela Hospitality, LLC (Axela) conducted at least 60 securities offerings through private placements and created approximately 150 entities in the form of limited liability companies or similar vehicles to act as issuers or facilitators of the offerings, purportedly to fund the acquisition of specified assets, the majority of which were commercial real estate ventures. Contrary to representations in the offering memoranda that proceeds would be used for specific projects, the defendants allegedly diverted funds to pay returns to investors in prior offerings, or to fund expenses of the defendants.
In one offering, conducted in 2005, the SEC complaint alleges that defendants falsely represented to investors that the more than $9 million raised would be used to purchase seven specifically identified real estate properties that were leased by federal government agencies, such as the General Services Administration. In fact, according to the complaint, the defendants never purchased the seven properties. Moreover, at the time the offering occurred, they knew or were reckless in not knowing that the seven properties would not be acquired. Significantly, while the offering was ongoing, the Wextrust entities "borrowed" more than $6 million from the funds raised in the GSA offering and used these funds for purposes unrelated to the GSA offering.
Overall, the complaint alleges, defendants diverted at least $100 million dollars to unauthorized purposes. The complaint alleges that the defendants are conducting at least four ongoing offering frauds intended to raise money to pay back investors from prior offerings.
In addition to the emergency relief sought today, the Commission's complaint seeks disgorgement of the defendants' ill-gotten gains, civil penalties, and permanent injunctions barring future violations of the antifraud and other provisions of the federal securities laws.
The complaint names the following defendants.
The Complaint alleges that defendants violated and are violating Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. Wextrust Securities violated Sections 15(b)(1), 15(b)(7) and 15(c)(1) of the Exchange Act and Rules 10b-3, 15b1-1, 15b3-1 and 15b7-1 promulgated thereunder. Shereshevsky violated Section 15(a) or alternatively, aided and abetted, Wextrust Securities' violations of Sections 15(b)(1), 15(b)(7) and 15(c)(1) of the Exchange Act and Rules 10b-3, 15b1-1, 15b3-1 and 15b7-1 promulgated thereunder. Byers aided and abetted Wextrust Securities' violations of Sections 15(b)(1), 15(b)(7) and 15(c)(1) of the Exchange Act and Rules 10b-3, 15b1-1, 15b3-1 and 15b7-1.
The Commission acknowledges the assistance of the United States Attorney for the Southern District of New York and the Federal Bureau of Investigation in connection with this matter. [SEC v. Steven Byers, Joseph Shereshevsky (a/k/a Joseph Heller and "Josie"), Wextrust Capital, LLC, Wextrust Equity Partners, LLC, Wextrust Development Group, LLC, Wextrust Securities, LLC and Axela Hospitality, LLC, 08 Civ. 07104 (SWK) (S.D.N.Y.)] (LR-20678)
INVESTMENT COMPANY ACT RELEASES
Prudential Annuities Life Assurance Corporation, et al.
A notice has been issued giving interested persons until Sept. 2, 2008, to request a hearing on an application filed by Prudential Annuities Life Assurance Corporation (PALAC), Prudential Annuities Life Assurance Corporation Variable Account B (the Account), and Prudential Annuities Distributors, Inc. (PAD, and collectively with PALAC and the Account, the Applicants). Applicants seek an order under Section 6(c) of the 1940 Act exempting them from Sections 2(a)(32), 22(c) and 27(i)(2)(A) of the Act and Rule 22c-1 thereunder, to permit, under specified circumstances, the recapture of certain credits previously applied to purchase payments made under (1) the Advanced Series XTra Credit Eight variable annuity contract (Contract), or (2) variable annuity contracts issued by PALAC in the future that are substantially similar in all material respects to the Contract and that are issued through the Account or any other separate account established in the future by PALAC (Future Account) that support variable annuity contracts. Applicants also requests that the order extend to any FINRA member broker-dealer controlling, controlled by, or under common control with PALAC, whether existing or created in the future, that serves as a distributor or principal underwriter of the Contract offered through the Account or any Future Account (Broker Dealers). In addition, Applicants request that the order extend to broker-dealers that are FINRA-registered and not affiliated with PALAC or the Broker-Dealers. (Rel. IC-28354- August 8)
Advanced Series Trust, et al.
A notice has been issued giving interested persons until Sept. 2, 2008, to request a hearing on an application filed by Advanced Series Trust, 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 registered open-end management investment companies relying on Rule 12d1-2 under the Act to invest in certain financial instruments. (Rel. IC-28355 - August 8)
Immediate Effectiveness of Proposed Rule Change
A proposed rule change filed by the New York Stock Exchange to extend until Oct. 1, 2008, the adoption of interim NYSE Rule 128 (Clearly Erroneous Executions) (SR-NYSE-2008-63) has become immediately 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 11. (Rel. 34-58323)
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