Wachovia Agrees to Preliminary Auction Rate Securities Settlement that Would Offer Approximately $9 Billion to Investors
The Securities and Exchange Commission's Division of Enforcement today announced that investors, small businesses, and charities who purchased auction rate securities (ARS) through Wachovia Securities, LLC and Wachovia Capital Markets, LLC (collectively Wachovia) could receive up to $9 billion to fully restore their losses and liquidity through a preliminary settlement that has been reached in principle with Wachovia.
The proposed charges stem from alleged misrepresentations made by Wachovia to thousands of its customers about the liquidity risk associated with ARS. Specifically, Wachovia marketed ARS to investors as cash alternatives, and represented that it would provide one-day or same-day liquidity by purchasing customers' ARS. However, Wachovia failed to adequately disclose that the liquidity of these securities was premised on Wachovia providing support bids for auctions it managed when there was not enough customer demand, and that its offer to provide one-day liquidity could be withdrawn at any time. When Wachovia stopped supporting auctions in February 2008, there were widespread auction failures and Wachovia stopped making good on its offer to provide one-day liquidity.
Linda Chatman Thomsen, Director of the SEC's Division of Enforcement, said, "We continue to work with state regulators and others to bring real relief to investors who were not given the forthright information they needed in the process of purchasing auction rate securities. This agreement in principle with Wachovia, if approved by the Commission, will permit tens of thousands of Wachovia investors to get their money back."
Under the terms of the agreement in principle, which are subject to finalization, review and approval by the Commission:
The SEC acknowledges the substantial assistance and cooperation from the Missouri Secretary of State, the North American Securities Administrators Association (NASAA), the New York Attorney General, and FINRA.
The SEC's investigation into individuals and other entities that participate in the ARS market is continuing.
For more information, contact: Merri Jo Gillette, Regional Director, SEC's Chicago Regional Office, (312) 353-9338 or Robert J. Burson, Associate Regional Director, SEC's Chicago Regional Office, (312) 353-7428. (Press Rel. 2008-176)
Closed Meeting - Thursday, August 21, 2008 - 2:00 p.m.
The subject matter of the closed meeting scheduled for Aug. 21, 2008, will be: formal orders of investigation; institution and settlement of injunctive actions; institution and settlement of administrative proceedings of an enforcement nature; and adjudicatory matters.
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.
Securities And Exchange Commission Orders Hearing On Registration Revocation Against Five Public Companies For Failure To Make Required Periodic Filings
Today the Commission instituted public administrative proceedings to determine whether to revoke or suspend for a period not exceeding twelve months the registrations of each class of the securities of five companies for failure to make required periodic filings with the Commission:
In this Order, the Division of Enforcement (Division) alleges that the five issuers are delinquent in their required periodic filings with the Commission.
In this proceeding, instituted pursuant to Exchange Act Section 12(j), a hearing will be scheduled before an Administrative Law Judge. At the hearing, the judge will hear evidence from the Division and the respondents to determine whether the allegations of the Division contained in the Order, which the Division alleges constitute failures to comply with Exchange Act Section 13(a) and Rules 13a-1 and 13a-13 or 13a-16 thereunder, are true. The judge in the proceeding will then determine whether the registrations pursuant to Exchange Act Section 12 of each class of the securities of these respondents should be revoked or suspended for a period not exceeding twelve months. The Commission ordered that the Administrative Law Judge in this proceeding issue an initial decision not later than 120 days from the date of service of the order instituting proceedings. (Rel. 34-58366; File No. 3-13133)
SEC Freezes Funds in Trans-Atlantic "Pump and Dump" Scheme
The Commission announced today that it obtained an emergency court order freezing the profits from an alleged $13 million international fraud involving a Seattle-area microcap company and a Barcelona stock promoter. The Commission charged Bremerton, Wash.-based GHL Technologies, Inc., and its CEO Gene Hew-Len with issuing a series of false press releases touting the company's business dealings. The Commission also charged Francisco Abellan (also known as "Frank Abel") of Barcelona, Spain with coordinating the scheme, sending glossy promotional mailers to over 2 million U.S. recipients and unloading over $13 million in GHL stock on unsuspecting investors.
At the SEC's request, the federal district court in Tacoma, Wash. Thursday issued an order freezing Abellan's assets and prohibiting him from further dissipating the proceeds of the scheme (most of which, according to the SEC, he transferred to multiple bank accounts in the principality of Andorra).
GHL (later renamed NXGen Holdings, Inc.) is an installer of GPS-based navigation equipment. According to the Commission's complaint, in early 2006, President and CEO Hew-Len and stock promoter Abellan arranged for GHL to issue millions of shares of GHL stock to offshore entities designated by Abellan. In April 2006, the SEC alleges, Abellan caused the dissemination of "The Street Stock Report," a full-color glossy mailer sent to millions of U.S. addresses urging investors to purchase GHL stock quickly to see huge trading profits. Around the same time, Hew-Len issued nine press releases over a nine-week period hyping the company. Among other things, according to the SEC, the press releases made false claims about contracts with large customers, fraudulently touting millions of dollars in potential revenues.
Following this concerted promotion campaign, GHL's stock price doubled and trading volume spiked nearly 1500%. Abellan and his entities sold their GHL stock holdings for profits in excess of $13 million. The stock, which reached a high of nearly $9 per share at the height of the scheme, now trades at under a penny.
The SEC's complaint charges GHL, Hew-Len and Abellan with violating Sections 5(a) and 5(c) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and seeks preliminary and permanent injunctions, disgorgement, penalties, and other permanent and emergency relief. The complaint also names various entities associated with Abellan, including Vega Star Capital, EU Equity Holdings, and KLO Financial Services, as defendants or relief defendants. Pursuant to the court's order, a hearing will be held on August 27, 2008 to determine whether the asset freeze will remain in place during the remainder of the litigation. [SEC v. Francisco Abellan, et al., Case No. 3:08-cv-05502-FDB (W.D. Wash.)] (LR-20684)
Immediate Effectiveness of Proposed Rule Change
A proposed rule change filed by National Stock Exchange (SR-NSX-2008-15) relating to the operative date of NSX Rule 2.11 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 18. (Rel. 34-58354)
JOINT INDUSTRY PLAN RELEASES
Notice of Filing of The Twelfth Substantive Amendment to the Second Restatement of the Consolidated Tape Association Plan and the Eighth Substantive Amendment to the Restated Consolidated Quotation Plan
Pursuant to Rule 608 under the Securities Exchange Act of 1934, the Consolidated Tape Association (CTA) has filed amendments to the CTA and CQ Plans (Plans) (SR-CTA/CQ-2008-02) to permit the Chairman of the CTA and the CQ Plan Operating Committee in lieu of signatures from each Participant to file ministerial Plans amendments. Publication is expected in the Federal Register during the week of August 18. (Rel. 34-58358)
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