SEC Expands Sweeping Investigation of Market Manipulation
Measure Will Require Statements Under Oath by Market Participants
On September 19, the Securities and Exchange Commission announced a sweeping expansion of its ongoing investigation into possible market manipulation in the securities of certain financial institutions. The expanded investigation will include obtaining statements under oath from market participants.
Hedge fund managers, broker-dealers, and institutional investors with significant trading activity in financial issuers or positions in credit default swaps will be required, under oath, to disclose those positions to the Commission and provide certain other information.
The Commission also approved a formal order of investigation that will allow SEC enforcement staff to obtain additional documents and testimony by subpoena. Investigators from NYSE Regulation and FINRA will be conducting a separate, parallel inquiry in coordination with the SEC by making on-site visits to various broker-dealers to address concerns about recent short selling activity.
"Investors have a right to know that the rule of law is being enforced and that our capital markets are not being manipulated," said SEC Chairman Christopher Cox. "We are working together with our regulatory partners at NYSE Regulation and FINRA in order to quickly identify, isolate and aggressively prosecute any violations of the federal securities laws during this period of market turmoil."
Linda Chatman Thomsen, Director of the SEC's Division of Enforcement, added, "Abusive short selling, market manipulation and false rumor mongering for profit by any entity cuts to the heart of investor confidence in our markets. Such behavior will not be tolerated. We will root it out, expose it, and subject the guilty parties to the full force of the law."
The Commission's actions follow recent reports of trading irregularities and allegations of false rumor mongering, abusive short selling and possible manipulation of financial stocks.
For more information, contact: Scott Friestad, Deputy Director, SEC's Division of Enforcement, 202-551-4962 or John Polise, Assistant Director, SEC's Division of Enforcement, 202-551-4981. (Press Rel. 2008-214)
SEC Acts to Support Swift Court Approval of Barclay's Acquisition of Lehman Brothers, Inc.
Decision Assures Quick and Orderly Transfer of Customer Accounts
On September 20, Securities and Exchange Commission Chairman Christopher Cox announced that U.S. Bankruptcy Court Judge James M. Peck this morning approved the sale of substantially all of the assets of Lehman Brothers, Inc., to Barclays Capital. The court's approval, just days after Lehman's parent company filed for bankruptcy, brings immediate and significant benefits to Lehman's brokerage customers and the capital markets.
The court's decision followed a marathon eleven-hour hearing in a packed Manhattan courtroom where attorneys from the SEC and other government agencies successfully supported Lehman's argument that swift approval of the deal was in the national interest.
The court's approval means that the hundreds of thousands of Lehman's customer accounts can be transferred without undue interruption, instead of going through a lengthy brokerage liquidation process that can take weeks and impair customer access to cash and securities. The transfer of most retail accounts, which hold over one hundred billion dollars in assets, is expected to be completed within days. In one of the last liquidations of a major securities firm, when Drexel collapsed in 1990, it was weeks before customer accounts were transferred to a new firm. The expeditious transfer of Lehman's assets also avoids disruption of capital markets because securities transactions will continue to be completed and Lehman's counterparties can confidently continue to do business with the firm.
"Every investor and every market participant, not just Lehman's customers and employees, has every reason to cheer today's court decision," said SEC Chairman Christopher Cox. "The SEC is proud to have overseen and helped to arrange this unprecedented resolution that avoids what could have been a long, painful ordeal for Lehman's customers and our capital markets. I especially want to applaud the court and the dedicated, creative, and tireless SEC professional staff who helped achieve this result in record time."
The SEC appreciates the close cooperation of the Federal Reserve, SIPC, CFTC, FINRA, the UK Financial Services Authority, Barclays and Lehman in achieving the resolution approved today. (Press Rel. 2008-215)
Statement of SEC Division of Trading and Markets Regarding the Protection of Customer Assets
In recent days, Securities and Exchange Commission staff have received a number of questions from investors regarding the protection of their assets held by broker-dealers.
Customers of U.S. registered broker-dealers benefit from the extensive protections provided by the Commission rules, including the Customer Protection Rule, as well as protection by the Securities Investor Protection Corporation (SIPC). The Commission's Customer Protection Rule requires a broker-dealer to segregate customer cash and securities from a broker-dealer's own proprietary assets. More specifically, the rule requires that a broker-dealer keep customer cash and fully paid securities free of lien and in a safe location.
Any person who has deposited funds or securities in a securities account at a broker-dealer is a "customer" under the Customer Protection Rule. Securities customers of U.S. broker-dealers are not permitted to opt out of the protections afforded by the Customer Protection Rule. There is a technical exception for affiliates of the broker-dealer, but this exception would not affect the protections generally extended to a customer's funds and securities deposited at the broker-dealer.
In addition to the Commission's rules that protect securities customers, SIPC also protects securities customers up to $500,000 per customer, including a maximum of $100,000 for cash claims. To determine if your broker-dealer is a member of SIPC, or to learn more about the SIPC protections, you can check the SIPC website at www.sipc.org. (Press Rel. 2008-216)
SEC Approves Amended Order Requiring Reporting of Short Positions by Certain Investment Managers
The U.S. Securities and Exchange Commission today approved amendments to its emergency order of September 18 (Release No. 58591) requiring that certain institutional money managers report their new short sales of certain publicly traded securities.
In addition to making technical amendments, the revised order also provides that the information disclosed by investment managers on new Form SH will be nonpublic initially, but will be made available to the public via the Commission's EDGAR website two weeks after it is electronically filed with the Commission.
The amended order will take effect at 12:01 a.m. EDT on Monday, Sept. 22, 2008.
Under the order, covered institutional money managers will be required to report any new short selling in all equity securities, except options, that are admitted for trading on a national securities exchange or quoted on the automated quotation system of a registered securities association. If any new short sales are effected on September 22 through September 27, the managers are required to submit a report on new Form SH to the Commission on Sept. 29, 2008. These managers are already required to report their long positions in these securities on Form 13F.
The Commission may extend the emergency order beyond its current effective period of 10 business days if it deems an extension necessary in the public interest and for the protection of investors, but will not extend the order for more than 30 calendar days in total duration. (Press Rel. 2008-217)
Statement of SEC Division of Trading and Markets Regarding Technical Amendments to Short Sale Order
The Securities and Exchange Commission's Division of Trading and Markets today issued the following statement:
The Commission has approved technical amendments to the Emergency Order banning short selling in financial stocks. The technical amendments were made to ensure the continued smooth operation of orderly markets, and to coordinate to the extent possible with similar actions restricting short sales by foreign regulators.
The technical amendments keep in place the exception contained in the original order for short selling related directly to bona fide market making in derivatives in the securities of any Included Financial Firm. However, this exception now requires that, for new positions, a market maker may not sell short if the market maker knows a customer or counterparty is increasing an economic net short position in the shares of the Included Financial Firm.
The technical amendments thus incorporate concepts included in the limitations on increasing net short positions imposed by the U.K. Financial Services Authority (FSA) in its response to short selling. The provisions are not identical because unlike the FSA, the Commission does not have statutory authority over swap contracts and other non-security over-the-counter derivatives.
The technical amendments also provide criteria by which the listing exchanges will select the individual financial institutions with securities covered by the Order. The categories include banks, savings associations, broker-dealers, investment advisers, and insurance companies, whether domestic or foreign, and the owners of any of these entities. Issuers can opt out by notifying the exchange to exclude their securities from the list. (Press Rel. 2008-218)
Regulators Release New Report to Assist Financial Services Firms in Serving Older Investors
Washington, D.C., Sept. 22, 2008 - As part of the Securities and Exchange Commission's third annual Seniors Summit held in Washington today, the staff of the SEC along with the Financial Industry Regulatory Authority (FINRA) and the North American Securities Administrators Association (NASAA) released a joint report outlining practices that financial services firms can use to strengthen their policies and procedures for serving older investors as they approach and enter retirement.
Projections show that nearly one in every six Americans will be age 65 or older by the year 2020. Given the increasing number of investors who need advice and guidance, financial services firms are actively developing new products and increasingly providing financial advice and services to senior investors. The SEC, FINRA, and NASAA view the protection of senior investors as a top priority.
The regulators' joint report - Protecting Senior Investors: Compliance, Supervisory and Other Practices Used by Financial Services Firms in Serving Investors - provides practical examples of proactive steps being taken financial services firms in serving senior investors.
SEC Chairman Christopher Cox said, "Today's market turmoil affects senior investors very directly, because for them, investing for the longer term isn't an option. They and the more than 76 million baby boomers will directly benefit from this report on improving broker-dealer sales practices and developing high standards for firms' interactions with senior investors."
NASAA President Fred Joseph said, "The practices outlined in this report, combined with strong regulation, effective industry compliance and supervision, and increased investor awareness, help ensure that the financial needs of our growing senior population are being met by brokers, investment advisers and others in the financial services industry. We appreciate the efforts of those in the industry who shared their successful programs with us and we look forward to continue working with the SEC, FINRA, and the financial services industry in the fight against senior investment fraud."
FINRA CEO Mary Schapiro said, "FINRA is working closely with firms to make sure they treat seniors properly and educate brokers how best to interact with this growing segment of the investor population. The Joint Report will prove to be a valuable resource to financial services professionals as they struggle with the range of issues associated with an aging customer base - and it is my belief that this report will help make the securities industry a leader among industries when it comes to developing guidelines to serve senior customers."
The regulators' joint report summarizes firms' practices in the following areas:
By sharing this information, regulators hope to provide practical examples to assist firms in ensuring that they work with senior investors in an ethical, respectful and informed manner.
The SEC's Seniors Summit also includes discussions about how securities firms and professionals can detect signs of diminishing capacity of a senior investor and what steps to take; what will get securities professionals into trouble with regulators and enforcement officials; and new surveillance techniques to make sure firms are in compliance with the law. (Press Rel. 2008-220)
Chairman Cox to Testify
Chairman Christopher Cox will testify before the Senate Committee on Banking, Housing and Urban Affairs on Tuesday, Sept. 23, 2008. The hearing will begin at 9:30 a.m. in Room G-50 of the Dirksen Senate Office Building and is entitled: "Turmoil in the US Credit Markets: Recent Actions Regarding Government Sponsored Entities, Investment Banks and Other Financial Institutions."
Change in the Meeting: Date Change
The Closed Meeting scheduled for Tuesday, Sept. 23, 2008, at 10:00 a.m., has been changed to Wednesday, Sept. 24, 2008, at 10:00 a.m.
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.
RULES AND RELATED MATTERS
SEC Amends the Rules Applicable to Cross-Border Tender Offers, Exchange Offers, Rights Offers, and Business Combinations, as well as the Beneficial Ownership Reporting Rules for Certain Foreign Institutions
The Commission issued a release amending the rules applicable to cross-border tender and exchange offers and other kinds of cross-border business combination transactions and rights offerings by foreign private issuers. The amendments are intended to protect U.S. investors while facilitating and streamlining cross-border transactions, as securities markets become increasingly globalized. The Commission also adopted amendments to the beneficial ownership reporting requirements for certain foreign institutional investors. These rule revisions will allow some foreign institutions to file beneficial ownership reports on a shorter form, under the same circumstances as their U.S. institutional counterparts. In addition, the Commission issued guidance on several cross-border issues. Several of these rule revisions will apply to all tender offers, including those for U.S. target companies. The effective date of the rule amendments will be 60 days after their publication in the Federal Register. The interpretive guidance is effective upon publication.
For further information, contact Christina Chalk, Senior Special Counsel, or Tamara Brightwell, Senior Special Counsel, Division of Corporation Finance, at (202) 551-3440, or Elizabeth Sandoe, Branch Chief, or David Bloom, Special Counsel, Division of Trading and Markets (regarding Rule 14e-5), at (202) 551-5720. (Rels. 33-8957; 34-58597; File No. S7-10-08)
Securities and Exchange Commission Orders Hearing on Registration Revocation Against Five Public Companies for Failure to Make Required Periodic Filings
On September 19, 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 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. 34-58600; File No. 3-13223)
In the Matter of David Blain, CPA
On September 19, the Commission issued an Order Instituting Administrative and Cease-and-Desist Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934 and Rule 102(e) of the Commission's Rules of Practice, Making Findings and Imposing Remedial Sanctions (Order) against David Blain. The Order sanctions Blain for his role in the accounting practices at The BISYS Group, Inc. (BISYS). Without admitting or denying the Commission's findings, Blain consented to the issuance of the Order, which orders him to cease and desist from causing certain violations of the federal securities laws and denies him the privilege of appearing or practicing before the Commission as an accountant, with the right to apply for reinstatement after one year.
The Order finds that Blain, one of three directors of finance in BISYS's Insurance Services division, participated in a variety of improper accounting practices at the behest of his supervisor, the vice president of finance for BISYS's Insurance and Education Services group. Specifically, the Order finds that from at least July 2000 until at least March 2002, Blain participated in the following accounting practices that had the purpose and effect of materially overstating BISYS's income and revenue in the company's reported financial results and rendering its books and records inaccurate: (1) at least one instance of improper and unsupportable acquisition accounting - the recording as revenue to BISYS of the bonus commission income that had already been earned but not recorded by the acquired company; (2) the creation of inflated and unsupportable receivables for commissions on the sale of a particular insurance product, "419" plans - insurance products marketed to companies seeking to qualify for tax benefits related to Internal Revenue Code Sections 419 and 419A; and (3) the creation of phony revenue entries that were reversed promptly after BISYS reported its results for the quarter. The Order finds that these accounting practices and others resulted in the misstatement of BISYS's operating results, enabled the company to meet earnings targets, and resulted in the filing of inaccurate reports with the Commission and the creation and maintenance of inaccurate books and records from at least July 2000 through at least April 2003. The Order finds that by virtue of this conduct, Blain willfully aided and abetted, and was a cause of, BISYS's violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act, and Rules 12b-20, 13a-1 and 13a-13 thereunder.
BISYS previously settled Commission charges concerning the same and related conduct. For further information, see Litigation Release No. 20125 (May 23, 2007) (BISYS to Pay $25 million to Settle Financial Reporting and Related Charges by SEC. (Rel. 34-58605; AAE-2882; File No. 3-13226)
SEC Settles Charges With Video Game Executive
The Commission today announced that it has settled charges with Timothy M. Roberts, the former Chief Executive Officer of Seattle-based video game developer Infinium Labs, Inc. (also known as Phantom Entertainment, Inc.). As part of the settlement, Roberts agreed (without admitting or denying the Commission's allegations) to be barred from serving as an officer or director of any public company for five years, to barred from participating in any offering of penny stock for five years, and to pay a $30,000 civil penalty.
The settlement stems from a complaint filed by the Commission in May 2006 (as amended in May 2007) in federal court in the Middle District of Florida. According to the complaint, Roberts hired a stock promoter in November 2004 to send faxes to tens of thousands of potential investors across the country. The faxes made it appear as if Infinium Labs were on the verge of launching its flagship product, a home videogame system called the "Phantom." In fact, at the time of the fax campaign, Infinium Labs lacked the financial resources to overcome the significant technological and manufacturing hurdles preventing it from marketing the game system to consumers. The faxes also included baseless stock price targets, predicting that Infinium Labs' stock price would rise as much as 3,000% in the coming weeks.
The Commission alleges that, over the four months of the fax campaign, Roberts took advantage of the increased trading volume in Infinium Labs shares to sell his personal stock holdings without reporting the sales to the public. The Commission's complaint also alleges that Roberts paid the promoter with four million shares of his own Infinium Labs stock in violation of the registration provisions of the federal securities laws.
In the settlement, Roberts consented to a court order that enjoins him from future violations of Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933, Sections 10(b) and 16(a) of the Securities Exchange Act of 1934 and Rules 10b 5 and 16a 3 thereunder; prohibits him, for a period of five years, from acting as an officer or director of a publicly-held company; prohibits him, for a period of five years, from participating in any offering of penny stock; and orders him to pay a civil penalty of $30,000. [SEC v. Timothy M. Roberts, Case No. 06-cv-1611 T-23EAJ (M.D. Fla.)] (LR-20730)
Court Renders Final Judgment Assessing Civil Penalties of $1,170,000 Against Harris and $250,000 Against Conversion, Barring Harris from Serving as an Officer or Director of a Public Company for Seven Years, and Enjoining Further Violations
The Securities and Exchange Commission announced today that on September 17, United States District Judge Clarence Cooper, of the Northern District of Georgia, issued a final judgment resolving all remaining issues in the case and determining remedies against Rufus Paul Harris and Conversion Solutions Holding Corporation.
The Commission's Complaint, filed Oct. 24, 2006, alleged that Harris, from September 26 through Oct. 23, 2006, carried out a fraudulent scheme to inflate the market price of Conversion's stock through a series of false statements in press releases and Commission filings made by the company. Most of the false statements detailed in the Complaint concerned assets which Conversion claimed to own but did not, including the entirety of two series of sovereign Venezuelan bonds.
In a previous Order issued July 21, 2008, granting the Commission's motion for default judgment, the Court found that: (1) Harris and Conversion violated Section 10b-5 of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder; (2) Conversion violated the reporting provisions of the Exchange Act (Section 13(a) and Rules 12b-20, 13a-1 and 13a-11) with regard to five separate Commission filings; (3) Harris aided and abetted Conversion's violations of the reporting provisions of the Exchange Act (Section 13(a) and Rules 12b-20, 13a-1 and 13a-11) with regard to those same five separate Commission filings; and (4) Harris falsely certified three separate periodic reports of Conversion filed with the Commission in violation of Rule 13a-14 promulgated under the Exchange Act.
The Court's Sept. 17, 2008 decision followed a live remedies hearing on Sept. 10, 2008, at which the Commission presented evidence that short-selling had no meaningful effect on Conversion's share price from September 26 through Oct. 23, 2006, as only approximately 250,000 shares of Conversion were sold short short out of a total of over 62,000,000 shares traded during that period.
On the basis of the evidence presented at the hearing, the Court found that Conversion never had any business-related revenue, and that its only source of funds was an ongoing offering of convertible notes and/or stock that began before the time period charged in the Complaint. The Court also found that Conversion had not paid any money for any of the purported assets carried on its books, which consisted of various series of bonds, uncollected interest due on the purported bonds, and a document called the UCC-1 Note. The Court found that the UCC-1 Note is not a standard piece of commercial paper, but an eight-page document signed by an individual named David Hawkins, which purports to be an "Affidavit of Obligation" in favor of Mad Dog Builders, Inc. and Mr. Hawkins, and which contains references to purported legal concepts including the "individual energy protection maxim," the "social cooperation protection maxim," and the "Hebrew/Jewish Commercial Code."
The Court found that, through three relatives, Harris attempted, unsuccessfully, to sell up to 1.6 million shares of Conversion into the public market during the time period alleged in the complaint, while the stock was trading at dramatically inflated prices as a result of his fraudulent misstatements about Conversion's purported assets in Conversion's press releases and SEC filings. The Court found that the scheme caused tremendous harm to the investing public, resulting in many millions of dollars of losses to thousands of innocent investors.
On the basis of these findings, the Court permanently enjoined Harris and Conversion from future violations of the statutes it had found them to have violated in its July 21, 2008 Order. Additionally, the Court barred Harris, pursuant to Section 21(d)(2) of the Exchange Act, from acting as an officer or director of any issuer with a class of securities registered pursuant to Section 12 of the Exchange Act or that is required to file reports pursuant to Section 15(d) of the Exchange Act for a period of seven (7) years. Finally, the Court ordered Harris to pay a civil penalty of $1,170,000, and Conversion to pay a civil penalty of $250,000. The Court did not find a basis for disgorgement of any ill-gotten gains by Harris or Conversion. Accordingly, there is no statutory authority for the creation of a Fair Fund in this case, and any funds collected pursuant to the Court's Sept. 17, 2008 Order will be paid to the U.S. Treasury.
Additional information concerning this action and the Commission's actions related to this matter can be found at: Litigation Release No. 19883 / Oct. 25, 2006. [SEC v. Conversion Solutions Holding Corporation and Rufus Paul Harris a/k/a Paul Rufus Harris, Civil Action No. 1:06-cv-2568-CC (N.D.Ga.)] (LR-20731)
SEC Charges Former South Florida Broker for Defrauding Senior Citizens and Other Customers
The Securities and Exchange Commission today charged a former broker in South Florida who allegedly defrauded senior citizens and other customers through a variety of abusive sales practices, garnering him more than $700,000 in commissions and fees while causing more than $2.7 million in investor losses.
The SEC's complaint in today's enforcement action alleges that Gary J. Gross, a former registered representative who worked in the Boca Raton, Fla., branch office of broker-dealer Axiom Capital Management, Inc., recommended unsuitable securities and engaged in unauthorized and often unsuitable trades in his customers' accounts. Many of these customers were elderly, unsophisticated investors who wanted to preserve their investment principal and grow their portfolios while investing with minimal risk. To cover up his misconduct, Gross allegedly provided some customers with documents reflecting false account values.
According to the SEC's complaint, Gross, who now resides in Far Rockaway, N.Y., persuaded customers to open accounts with him at Axiom from at least early 2004 through September 2006, pledging that he could deliver higher income and more safety than their current broker. The complaint alleges that Gross then traded the customers' accounts in disregard of their generally conservative investment objectives.
Specifically, the SEC's complaint, filed in the United States District Court for the Southern District of Florida, alleges that Gross recommended mutual funds and closed-end funds to his customers that were unsuitable for them and purchased risky, illiquid private placements and private investments in public equities, sometimes referred to as "PIPEs," in his customers' accounts without disclosing to them the risk factors.
The SEC's complaint also alleges:
The SEC's complaint charges Gross with 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. The Commission seeks a permanent injunction, disgorgement of ill-gotten gains plus prejudgment interest, the imposition of a civil monetary penalty and a penny stock bar against Gross.
The SEC's investigation is continuing. [SEC v. Gary J. Gross, Case No. 08-81039-CIV-Marra/Johnson (S.D. Fla.)] (LR-20732)
Court Enters Permanent Injunctions and Penny Stock Bars Against William Todd Peever and Phillip James Curtis In Market Manipulation Case
The Commission today announced that the Honorable Denise Cote of the United States District Court for the Southern District of New York entered separate judgments of permanent injunction and other relief, including bars against participating in offerings of penny stocks, against William Todd Peever and Phillip James Curtis on Aug. 25, 2008. Without admitting or denying the Commission's allegations, Peever and Curtis consented to the entry of their respective judgments. These judgments resolve the Commission's claims against Peever and Curtis (except for the determination of monetary relief) in a civil action filed on Dec. 19, 2007, in which the Commission alleged that that they had participated in a fraudulent scheme to manipulate the stock price of SHEP Technologies, Inc. (SHEP) f/k/a Inside Holdings Inc. (IHI), whose shares traded on the Over-the-Counter Bulletin Board. With regard to the monetary relief, the judgments order Peever and Curtis each to pay disgorgement, prejudgment interest, and civil penalties in amounts to be determined by the Court.
The Commission's complaint alleged, in pertinent part, that during 2002 and 2003, defendants Peever and Curtis, together with certain co-defendants, engaged in a scheme to secretly obtain control of the publicly traded shell company IHI, through use of nominees. The scheme involved merging IHI with a private company to form SHEP, paying touters to promote the IHI/SHEP stock, and then selling SHEP stock into the ensuing demand. During the first half of 2003, Peever, Curtis, and certain co-defendants sold over 3 million SHEP shares into this artificially-stimulated demand, generating about $4.3 million in illegal proceeds. As part of the scheme, Peever and Curtis failed to file required reports regarding their beneficial ownership of IHI and SHEP stock, and a co-defendant caused several false reports to be filed with the Commission to conceal that Peever and Curtis, among others, owned substantial positions in, and had been selling, SHEP stock.
The judgments (i) permanently enjoin Peever and Curtis from future violations of the antifraud provisions of the federal securities laws, Section 17(a) of the Securities Act of 1933 (Securities Act), Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Exchange Act Rule 10b-5; the securities registration provisions of the federal securities laws, Section 5 of the Securities Act; and the beneficial ownership reporting provisions, Section 13(d) of the Exchange Act and Rules 13d-1 and 13d-2 thereunder, (ii) permanently bar them from participating in any future offerings of penny stocks, and (iii) order Peever and Curtis each to pay disgorgement, prejudgment interest and civil penalties in amounts to be determined by the Court. [Securities and Exchange Commission v. Brian N. Lines, et al., Civil Case No. 07-CV-11387, USDC, SDNY] (LR-20407). [SEC v. Brian N. Lines, Scott G.S. Lines, LOM (Holdings) Ltd., Lines Overseas Management Ltd., LOM Capital Ltd., LOM Securities (Bermuda) Ltd., LOM Securities (Cayman) Ltd., LOM Securities (Bahamas) Ltd., Anthony W. Wile, Wayne E. Wile, Robert J. Chapman, William Todd Peever, Phillip James Curtis, and Ryan G. Leeds, 1:07-CV-11387 (DLC) (S.D.N.Y.)] (LR-20733)
SEC v. Nolan Wayne Wade
The Commission announced the filing of a complaint for injunctive and other relief against Nolan Wayne Wade (Wade) in United States District Court for the Southern District of Mississippi arising from Wade's violations of an Order imposed by the Commission on July 29, 2003, prohibiting Wade from participation in any offering of penny stock (Penny Stock Order). The Penny Stock Order was based upon a federal district court's entry of a permanent injunction against Wade following the Commission's filing of a Complaint against Wade alleging his fraudulent participation in a penny stock offering and acting as an unregistered broker-dealer. Securities and Exchange Commission v. Nolan W. Wade, et al., Civil Action No. 98-1857-S (W.D. La.). Wade resides in Moselle, Mississippi and is president of Bio Solutions Franchise, Inc. (Bio Franchise).
The newly filed complaint against Wade alleges that he violated the Commission's Penny Stock Order in 2005 and 2006 by: (1) obtaining 1,419,267 shares of Bio Solutions Manufacturing, Inc. (Bio Manufacturing), a penny stock company, pursuant to a consulting agreement with Bio Manufacturing, and subsequently selling, in his own name and in the name of an entity that he controlled, most of the penny stock shares to foreign investors; (2) inducing Bio Manufacturing to issue ten million restricted shares of its common stock to Bio Franchise, in exchange for Bio Franchise's sale of all of the outstanding shares of its wholly owned subsidiary, Bio Extraction Services, Inc. (Bio Extraction). Wade is the president of Bio Franchise. In addition, the complaint alleges that Bio Franchise acquired 1,101,055 shares of Bio Manufacturing common stock prior to the sale of Bio Extraction, and that Bio Franchise sold substantially all of these shares to foreign investors. Finally, the Complaint alleges that Innovative Industries, LLC, a company that Wade and another individual owned and controlled, sold several million shares of Bio Manufacturing common stock to foreign investors.
The complaint alleges that the foregoing conduct violated both a Commission Order and Section 15(b)(6)(B)(i) of the Securities Exchange Act of 1934, 15 U.S.C. § 78o(6)(B). The Commission seeks a permanent injunction against further violations of Section 15(b)(6)(B)(i), disgorgement and prejudgment interest, and a civil penalty. [SEC v. Nolan Wayne Wade, Civil Action No. 2:08cv209-KS-MTP (S.D. Miss.) (Hattiesburg Div.)] (LR-20734)
Accelerated Approval of Proposed Rule Change
The Commission published notice and granted accelerated approval of a proposed rule change filed by the Chicago Stock Exchange (SR-CHX-2008-12), consolidating into a single rule certain requirements for products traded on the exchange pursuant to unlisted trading privileges. Publication is expected in the Federal Register during the week of September 22. (Rel. 34-58568)
Approval of Proposed Rule Changes
The Commission granted approval to a proposed rule change, as modified by Amendment Nos. 1 and 2, (SR-NASDAQ-2008-033) submitted by the NASDAQ Stock Market related to submission of non-tape reports. Publication is expected in the Federal Register during the week of September 22. (Rel. 34-58569)
The Commission granted approval of a proposed rule change (SR-OCC-2008-16) filed by the Options Clearing Corporation under Section 19(b)(1) of the Exchange Act relating to the cash dividend threshold. Publication is expected in the Federal Register during the week of September 22. (Rel. 34-58586)
Proposed Rule Change
The American Stock Exchange filed a proposed rule change (SR-Amex-2008-70), as modified by Amendment No. 1 thereto, to revise its initial listing process to eliminate the current appeal process for initial listing decisions, add a new confidential pre-application eligibility review process, and upgrade its listing requirements by eliminating the Alternative Listing Standards. Publication is expected in the Federal Register during the week of September 22. (Rel. 34-58570)
JOINT INDUSTRY PLAN RELEASES
Order Approving 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
The Commission has approved, pursuant to Rule 608 under the Securities Exchange Act of 1934, proposed amendments to the Consolidated Tape Association (CTA) and Consolidated Quotation (CQ) Plans (SR-CTA/CQ-2008-02) to allow for the submission of ministerial amendments to the Plans under the signature of the Chairman of CTA/CQ Operating Committee. Publication is expected in the Federal Register during the week of September 22. (Rel. 34-58585)
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