Securities and Exchange Commission Suspends Trading in Two Issuers for Failure to Make Required Periodic Filings
The U.S. Securities and Exchange Commission announced the temporary suspension of trading of the securities of the following issuers, commencing at 9:30 a.m. EDT on Sept. 16, 2008, and terminating at 11:59 p.m. EDT on Sept. 29, 2008:
The Commission temporarily suspended trading in the securities of the issuers due to a lack of current and accurate information about the companies because they have not filed periodic reports with the Commission for over seven years. This order was entered pursuant to Section 12(k) of the Securities Exchange Act of 1934 (Exchange Act).
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 these companies.
Brokers and dealers should be alert to the fact that, pursuant to Exchange Act Rule 15c2-11, at the termination of the trading suspension, no quotation may be entered relating to the securities of the subject companies unless and until the broker or dealer has strictly complied with all of the provisions of the rule. If any broker or dealer is uncertain as to what is required by the rule, it should refrain from entering quotations relating to the securities of these companies that have been subject to a trading suspension until such time as it has familiarized itself with the rule and is certain that all of its provisions have been met. Any broker or dealer with questions regarding the rule should contact the staff of the Securities and Exchange Commission in Washington, DC at (202) 551-5720. If any broker or dealer enters any quotation which is in violation of the rule, the Commission will consider the need for prompt enforcement action.
If any broker, dealer or other person has any information which may relate to this matter, they should immediately communicate it to the Delinquent Filings Branch of the Division of Enforcement at (202) 551-5466, or by e-mail at DelinquentFilings@sec.gov. (Rel. 34-58551)
In the Matter of Moon Capital Management, LP
On September 15, the Commission issued an Order Instituting Administrative and Cease-and-Desist Proceedings, Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order Pursuant to Section 21C of the Securities Exchange Act of 1934 and Section 203(e) of the Investment Advisers Act of 1940 (Order) against Moon Capital Management, LP (Moon Capital). The Order finds that Moon Capital participated in an offering in May 2005, in which it sold securities short during the restricted period before the pricing of the offering and then covered its short positions with securities purchased in the offering. These transactions violated Rule 105 of Regulation M and allowed Moon Capital to earn profits of $88,100 for the fund it advised.
Based on the above, the Order censures Moon Capital, requires it to cease-and-desist from committing or causing any violations, and any future violations, of Rule 105 of Regulation M, requires Moon Capital to disgorge $88,100 plus prejudgment interest of $20,971.67 and pay a $30,000 civil money penalty. Moon Capital consented to the issuance of the Order without admitting or denying any of the Commission's findings. (Rels. 34-58548; IA-2777; File No. 3-13197)
Commission Orders Hearings on Registration Revocation Against Nine Public Companies for Failure to Make Required Periodic Filings
The U.S. Securities and Exchange Commission today instituted public administrative proceedings against the following nine companies to determine whether the registration of each class of their securities should be revoked or suspended for a period not exceeding twelve months for failure to file required periodic reports:
In this Order, the Division of Enforcement (Division) alleges that the nine 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 thereunder, are true. The judge in the proceeding will then determine whether the registrations pursuant to Exchange Act Section 12 of the securities of these respondents should be revoked, or in the alternative, 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. 34-58552; File No. 3-13198)
In the Matter of Cornerstone Capital Management, Inc. and Laura Jean Kent
On September 16, the Commission issued an Order Instituting Administrative and Cease-and-Desist Proceedings Pursuant to Sections 203(e), 203(f) and 203(k) of the Investment Advisers Act of 1940 and Section 9(b) of the Investment Company Act of 1940 (Order) against Cornerstone Capital Management, Inc. (Cornerstone Capital), a registered investment adviser, and its sole principal, Laura Jean Kent (Kent), 59, of Redwood City, California.
In the Order instituting administrative proceedings against Cornerstone Capital and Kent, the Commission's Division of Enforcement alleges that, despite knowing that certain programs in which they had invested approximately $15 million of their clients' funds turned out to be scams, Cornerstone and Kent continued to assure their clients that the investments retained their full value. Even after the principals behind some of those investments were convicted of criminal fraud, Kent continued to charge an assets-under-management fee based on the original cost of the failed investments, collecting over a half-million dollars in inflated fees from her clients.
In its Order, the Commission's Division of Enforcement alleges that from 1997 to 2004, Kent and Cornerstone invested their clients' funds in five investments that bore the hallmarks of classic Ponzi or prime bank schemes, each of which produced disastrous results. The promoters in four of the five programs were eventually convicted of fraud, with Kent herself testifying at one of the trials. The Order alleges that despite knowing that the value of the investments was substantially impaired, Kent and Cornerstone continued to send clients quarterly account statements that valued the investments at their original cost. They overcharged clients through fees based on an inflated value of assets under management, falsely claiming that the value reflected the "market price" and "total market value" of the failed investments.
An administrative hearing will be scheduled to determine whether the allegations in the Order are true, and to afford Cornerstone Capital and Kent an opportunity to establish any defenses to the allegations. The proceedings will also determine whether Cornerstone Capital and Kent should be ordered to cease and desist from committing or causing violations of and any future violations of Sections 206(1) and 206(2) of the Advisers Act, and to determine whether remedial action, including but not limited to, civil penalties, is appropriate and in the public interest. The Order requires that an Administrative Law Judge issue an initial decision no later than 300 days from the date of service of the Order, pursuant to Rule 360(a)(2) of the Commission's Rules of Practice. (Rels. IA-2778; IC-28380; File No. 3-13199)
Jamie L. Solow Barred
Jamie L. Solow, of Hillsboro Beach, Florida, has been barred from association with any broker-dealer. The sanction was ordered in an administrative proceeding before an administrative law judge, following a court-ordered injunction against him. In July 2008, Solow was enjoined from violating the antifraud other provisions of the federal securities laws. The wrongdoing that underlies the injunction was Solow's fraudulent trading scheme involving inverse floating rate collateralized mortgage obligations. (Initial Decision No. 357; File No. 3-13066)
In the Matter of Nancy R. Heinen
On September 16, the Commission issued an Order Instituting Administrative Proceedings Pursuant to Rule 102(e) of the Commission's Rules of Practice, Making Findings and Imposing Remedial Sanctions (Order) against Nancy R. Heinen. The Order finds that Heinen, an attorney, was employed by Apple Inc. from September 1997 through May 2006 as Senior Vice President, General Counsel and Corporate Secretary. According to the Order, in April 2007 the Commission filed a lawsuit against Heinen in the United States District Court for the Northern District of California, entitled SEC v. Nancy R. Heinen (Civil Action No. 5:07-cv-02214-JF).
The complaint in that lawsuit alleged, among other things, that on two occasions in 2001 Apple issued large stock options grants to top executives at the company, but that in each case Heinen improperly backdated the grants to make it appear that they had been made at an earlier date, when Apple's stock price was lower. The complaint further alleged that Heinen caused corporate documents to be falsified to conceal the fraud. As a result, the complaint alleged, Apple failed to recognize and thereby concealed from investors millions of dollars of expenses related to the issuance of the options. In addition, the complaint alleged that Heinen received options on 400,000 shares of Apple stock from one of the backdated grants and, thus, personally benefited from the fraud.
On August 26, 2008, the court issued an order permanently enjoining Heinen, by consent, from future violations of Section 17(a) of the Securities Act of 1933 ("Securities Act") and Sections 10(b), 13(b)(5), and 16(a) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 13b2-1, 13b2-2, and 16a-3 thereunder, and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A), 13(b)(2)(B), and 14(a) of the Exchange Act and Rules 12b-20, 13a-1, 13a-13, and 14a-9 thereunder. In addition, the court order required Heinen to pay disgorgement of $1,575,000 (representing the in-the-money portion of the proceeds she received from exercising backdated options) plus $400,219.78 in interest, and a $200,000 civil penalty.
Based on the above, the Order suspends Heinen, effective immediately, from appearing or practicing before the Commission as an attorney for three (3) years. Heinen consented to the issuance of the Order without admitting or denying any of the findings in the Order. (Rel. 34-58553; AAE Rel. 2880; File No. 3-13200)
Securities and Exchange Commission Orders Hearing on Registration Revocation Against Six 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 six companies for failure to make required periodic filings with the Commission:
In this Order, the Division of Enforcement (Division) alleges that the six 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 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. 34-58554; File No. 3-13201)
SEC Charges Bogus PIPE Promoters in $52 Million Ponzi Scheme
On September 15, the Commission charged an Irvine, Calif., attorney and two other promoters for conducting a $52.7 million Ponzi scheme in which they sold investors bogus PIPE (private investment in public equity) investments, promised unrealistic profits, and misappropriated more than $20 million of investors' funds to function as their own personal piggy bank.
The SEC's complaint alleges that attorney Jeanne M. Rowzee along with James R. Halstead of Santa Ana, Calif., and Robert T. Harvey of Prosper, Texas, told investors that Rowzee was an experienced securities attorney who personally screened and selected each PIPE investment after thorough due diligence. Contrary to these representations, they did not place investor funds in PIPE investments. Rowzee, Halstead, and Harvey instead used new investor funds to pay principal and returns to earlier investors, and to finance their own personal endeavors such as trips to Las Vegas, property purchases, and alimony payments.
"Investors must be wary of promoters, even securities attorneys or other purported 'experts' who offer investment opportunities with high returns but fail to disclose complete and verifiable information about the investment they're touting," said Rosalind R. Tyson, Regional Director of the SEC Los Angeles Regional Office. "In this case, as alleged in our complaint, the so-called PIPE investments did not exist. The defendants raised millions of dollars from unsuspecting investors and simply used it to enrich themselves."
The SEC's complaint, filed in federal court in Santa Ana, Calif., alleges that from at least March 2004 through December 2006, the defendants sold the purported PIPE investments to investors, promising returns of 19 to 54 percent within 12 to 16 weeks. The SEC's complaint also alleges that Harvey formed a California limited liability company, Harvest Income LLC, to pool investor funds to invest in the purported PIPE investments. The defendants allegedly solicited business clients and acquaintances and generated word-of-mouth referrals.
According to the SEC's complaint, Halstead misappropriated at least $10.4 million of investor funds to support an extravagant lifestyle that has included frequent trips to Las Vegas and three luxurious homes. He also used the funds to pay living expenses for his wife, children, and others. Rowzee misappropriated at least $5.6 million of investor funds to pay her home mortgage and credit card bills, and purchase property in Arizona. Harvey misappropriated at least $2 million of Harvest Income funds to pay his personal credit card bills and other expenses, including alimony payments to his ex-wife. Harvey also paid himself approximately $2.3 million in purported "management fees."
The defendants are charged with securities fraud under 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, and with conducting an unregistered offering under Section 5 of the Securities Act. Rowzee and Harvey are also charged with investment adviser fraud under Sections 206(1) and 206(2) of the Investment Advisers Act of 1940, and Halstead is charged with aiding and abetting violations of Sections 206(1) and 206(2) of the Advisers Act. The Commission's complaint seeks permanent injunctions, disgorgement of ill-gotten gains, and civil penalties against each defendant.
The Commission acknowledges the assistance of the Federal Bureau of Investigation and the California Department of Corporations in this matter. [SEC v. Jeanne M. Rowzee, et.al., Civil Action No. SACV 08-1025 AG (ANx) ] (LR-20719)
Proposed Rule Change
NYSE Arca, through its wholly owned subsidiary, NYSE Arca Equities, Inc., has filed a proposed rule change (SR-NYSEArca-2008-94) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 and Rule 19b-4 thereunder amending NYSE Arca Equities Rules 5.1(b)(14) and 5.2(j)(2) to permit the listing of ELNs that are linked to securities issued by companies registered under the Investment Company Act of 1940. Publication is expected in the Federal Register during the week of September 15. (Rel. 34-58518)
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