Following is a schedule of Commission meetings, which will be conducted under provisions of the Government in the Sunshine Act. Meetings will be scheduled according to the requirements of agenda items under consideration.
Open meetings will be held in the Auditorium, Room L-002 at the Commission's headquarters building, 100 F Street, N.E., Washington, D.C. Visitors are welcome at all open meetings, insofar as space is available. Persons wishing to photograph or videotape Commission meetings must obtain permission in advance from the Secretary of the Commission. Persons wishing to tape record a Commission meeting should notify the Secretary's office 48 hours in advance of the meeting.
Any member of the public who requires auxiliary aids such as a sign language interpreter or material on tape to attend a public meeting should contact SECInterpreter@SEC.gov at least three business days in advance. For any other reasonable accommodation related disability contact DisabilityProgramOfficer or call 202-551-4158.
Open Meeting - Wednesday, November 19, 2008 - 10:00 a.m.
The subject matter of the open meeting will be:
Item 1: The Commission will consider whether to adopt rule amendments that would impose additional requirements on nationally recognized statistical rating organizations in order to address concerns about the integrity of their credit rating procedures and methodologies.
Item 2: The Commission will consider whether to adopt rule amendments to improve mutual fund disclosure by providing investors with a summary prospectus containing key information in plain English in a clear and concise format, and by enhancing the availability on the Internet of more detailed information to investors. The Commission also will consider whether to adopt related amendments to Form N 1A, including amendments that address exchange-traded funds.
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.
SEC Completes 14th Annual International Institute for Securities Enforcement and Market Oversight
The Securities and Exchange Commission announced today that it has completed its 14th Annual International Institute for Securities Enforcement and Market Oversight. It was held from November 3 to November 7 at SEC headquarters in Washington, D.C. Along with an International Institute for Securities Market Development, which is held in the spring of each year, the Institute is the SEC's flagship training program.
Attendance included more than 165 senior securities officials from more than 55 foreign jurisdictions. Approximately 40 speakers made presentations at the Institute, including speeches by SEC Chairman Christopher Cox, and the SEC Director of Enforcement Linda Chatman Thomsen. Presentation topics included financial fraud, offering fraud, insider trading, market manipulation, market surveillance systems, broker-dealer compliance, auditor oversight, remedies and sanctions, hedge funds, the current market turmoil, and criminal enforcement and parallel proceedings as well as international cooperation.
Chairman Cox said, "The events of recent months have demonstrated more clearly than ever that maintaining market confidence is a global responsibility. As the credit crisis has unfolded throughout the world, the SEC has been working closely with our international regulatory counterparts, including those attending the Institute. The scale of our international enforcement cooperation has been massive. Over the last year, the SEC made 556 requests of foreign regulators for assistance with SEC investigations. That's more than one a day on average. And the SEC has responded to nearly as many requests from abroad. In the midst of the current global financial storms, the Institute and the opportunities it provides to share strategies and best practices are more important than ever."
Ethiopis Tafara, Director of the SEC's Office of International Affairs, added, "During periods of market turmoil, market frauds like insider trading, market manipulation, financial accounting fraud, pyramid schemes, and customer abuse often intensify. We must remain especially vigilant in the days ahead for these timeless frauds that have always threatened the integrity of capital markets. The SEC staff is absolutely committed to solidifying our partnerships with our international counterparts to combat any abuse that weakens our respective capital markets."
Along with the Institutes, the SEC offers a technical assistance program, which includes regional training programs, bilateral training programs, reviews of foreign statutes and regulations, and responses to specific technical assistance inquiries. The SEC has provided training for more than 1,900 foreign capital market officials from 125 foreign jurisdictions in fiscal year 2008 alone. For more information on SEC's technical assistance program, contact Dr. Robert M. Fisher or Z. Scott Birdwell at the Office of International Affairs at 202-551-6690 or by e-mail at OIA@SEC.gov. (Press Rel. 2008-268)
Default Final Judgment of Permanent Injunction and Other Relief Entered Against Defendant Larry W. Kerschenbaum
The Commission announced that on November 7, the United States District Court for the Southern District of Florida entered a default final judgment of permanent injunction against Larry W. Kerschenbaum (Kerschenbaum) for violating a 2004 Commission administrative order prohibiting him from selling penny stocks. Kerschenbaum violated the order by soliciting investors to purchase shares of penny stock in a now defunct Fort Lauderdale-based company.
As the complaint alleges, in June 2004, an Administrative Law Judge entered an order by default against Kerschenbaum barring him from participating in any offering of penny stock. The judge imposed the bar against Kerschenbaum based on his 2003 conviction for conspiring to commit securities fraud by agreeing to bribe brokers to artificially increase the stock price of a public company.
The default final judgment enjoins Kerschenbaum from future violations of Section 15(b)(6)(B)(i) of the Securities Exchange Act of 1934. In addition, the final judgment orders Kerschenbaum to pay $63,500 in disgorgement, plus $13,858.52 in prejudgment interest, and a $63,500 civil penalty, and permanently bars him from participating in any offering of a penny stock.
For additional information, see Litigation Release No. 20714 (Sept. 12, 2008). [SEC v. Larry W. Kerschenbaum, Case No. 08-61452-CIV-Altonaga in the United States District Court for the Southern District of Florida] (LR-20802)
Former Aspen Technology, Inc. Chairman and CEO Settle SEC Charges for their Roles in Corporate Accounting Fraud
The Commission announced today that on November 12, the United States District Court for the District of Massachusetts entered final judgments by consent against former Aspen Technology, Inc. (Aspen) founder and Chairman of the Board of Directors Lawrence B. Evans and former Chief Executive Officer David L. McQuillin in a case filed by the Commission in January 2007. The Commission's action charged Evans and McQuillin with, among other things, securities fraud in connection with their participation in a revenue inflation scheme with another senior officer of Aspen, a Cambridge, Massachusetts software company. Without admitting or denying the allegations in the Commission's complaint, McQuillin and Evans each consented to the entry of a final judgment enjoining them from violating the anti-fraud and other provisions of the securities laws. McQuillin was also ordered to pay an $85,000 civil penalty, $28,381.61 in disgorgement and pre-judgment interest, and was barred from serving as an officer or director of any public company, and Evans was ordered to pay a $75,000 civil penalty and $21,478.01 in disgorgement and pre-judgment interest.
According to the Commission's complaint, Evans and McQuillin, along with former Aspen Chief Financial Officer Lisa W. Zappala, caused Aspen to report inflated revenue in the company's publicly-filed financial statements and in press releases on at least six software transactions during fiscal years 1999 through 2002. The Complaint alleged that the three defendants caused Aspen to recognize revenue during the relevant period despite knowing that Aspen was prohibited from doing so under Generally Accepted Accounting Principles because contracts were not signed within the appropriate quarter and/or the earnings process was incomplete due to contingency arrangements which changed the terms of the customers' payment commitments under the contracts. The Complaint alleged that, as a result of the fraudulent scheme, Aspen overstated license revenue for its fiscal year ended June 30, 2000 by 5.5% and for the fiscal year ended June 30, 2001 by 9.3%. The Complaint further alleged that, as a result of prematurely recognized revenue from those earlier periods, license revenue for the fiscal years ended June 30, 2002, 2003, and 2004 was understated by 1.8%, 13.9%, and 4.0% respectively.
Separately, in a related criminal action, McQuillin pled guilty to one count each of conspiracy and securities fraud. In October 2007, the United States District Court for the Southern District of New York sentenced McQuillin to three years of probation and a $12,000 criminal fine for that conduct.
In addition to the financial penalties (and, as to McQuillin, the officer and director bar), the final judgments imposed permanent injunctions prohibiting Evans and McQuillin from violating Section 17(a) of the Securities Act of 1933, Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934, and Exchange Act Rules 10b-5, 13b2-1 and 13b2-2; and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act, and Exchange Act Rules 12b-20, 13a-1, 13a-11 and 13a-13.
The Commission's action against Zappala remains pending. [SEC v. Lawrence B. Evans, David L. McQuillin, and Lisa W. Zappala, Civil Action No. 07-CV-10027-JLT (D. Mass)] (LR-20803)
SEC Files Insider Trading Charges Against Former McKesson Corporation Vice President of Sales
On November 12, the Commission filed an enforcement action against William M. Gallahair for insider trading in advance of McKesson Corporation's public announcement on July 11, 2005, that it intended to acquire D&K Healthcare Resources, Inc., a St. Louis, Missouri-based distributor of pharmaceuticals and healthcare products. The Commission's complaint, filed in the United States District Court for the Northern District of California - San Francisco Division, alleges that Gallahair, a former Vice President of Sales at McKesson, misappropriated material, non-public information from McKesson about its planned acquisition of D&K through a tender offer and purchased shares of D&K stock based on that information.
According to the Commission's complaint, Gallahair, a resident of Newport Beach, California, was not officially provided with any notice of McKesson's plans to acquire D&K. Instead, the complaint alleges that Gallahair first learned about the planned acquisition eighteen days before McKesson publicly announced its tender offer for D&K when he overheard a telephone conversation by his supervisor about McKesson's integration plans for D&K. According to the Commission, Gallahair's supervisor had been selected to lead the team of McKesson employees preparing to integrate D&K's operations into McKesson. The complaint alleges that shortly after overhearing his supervisor's conversation, Gallahair purchased 20,000 shares of D&K stock based on material, non-public information about McKesson's imminent acquisition of D&K. According to the Commission, on July 11, 2005, when McKesson publicly announced its tender offer for D&K, the price of D&K's stock rose 68% from the previous day's closing price of $8.50 to $14.30 per share. The complaint alleges that Gallahair placed orders to sell all of his shares of D&K stock that day and realized profits of over $120,000 from his illegal insider trading. The Commission's complaint further alleges that on several occasions when he has been questioned about his trading, Gallahair has given conflicting explanations of his reasons for purchasing shares of D&K stock.
Based on Gallahair's conduct, the Commission's complaint charges Gallahair with violating Sections 10(b) and 14(e) of Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3 thereunder. The Commission is seeking a permanent injunction, disgorgement of all ill-gotten gains plus prejudgment interest and civil penalties against Gallahair. [SEC v. William M. Gallahair, USDC N.D. Cal., Civil Action No. CV08-5134] (LR-20804A)
SEC Files Settled Insider Trading Action Against Former Senior Finance Manager of McKesson Corporation
On November 12, the Commission filed a settled enforcement action against Jonathan Wilson for insider trading in advance of McKesson Corporation's public announcement on July 11, 2005, that it intended to acquire D&K Healthcare Resources, Inc., a St. Louis, Missouri-based distributor of pharmaceuticals and healthcare products. The Commission's complaint, filed in the United States District Court for the Northern District of California - San Francisco Division, alleged that Wilson, a former senior manager in McKesson's finance department, misappropriated material, non-public information from McKesson about its planned acquisition of D&K and purchased shares of D&K stock in several accounts belonging to his family members based on that information. Wilson consented upon the filing of the Commission's complaint to the entry of a final judgment permanently enjoining him from violating the antifraud and tender offer provisions of the federal securities laws and requiring him to pay disgorgement of $117,045.87.
According to the Commission's complaint, Wilson, a resident of San Lorenzo, California, learned about McKesson's acquisition plans for D&K through his supervisor, who along with others conducted due diligence on D&K in April and May 2005. The complaint alleges that while Wilson did not personally receive official advance notice of McKesson's acquisition of D&K, Wilson learned about the acquisition by overhearing his supervisor's meetings and phone calls about D&K and viewing documents regarding D&K left in plain view on his supervisor's desk which Wilson regularly visited. According to the complaint, after learning of McKesson's anticipated acquisition of D&K, Wilson purchased 17,530 shares of D&K in 12 different brokerage accounts belonging to various members of his family. The complaint alleges that on July 11, 2005, when McKesson publicly announced its tender offer for D&K, the price of D&K's stock rose 68% from the previous day's closing price of $8.50 to $14.30 per share. According to the Commission, the unrealized gains from Wilson's illegal insider trading total $117,045.87.
Based on Wilson's conduct, the Commission's complaint charges him with violating Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3 thereunder. To settle the Commission's charges, Wilson has consented, without admitting or denying the allegations in the complaint, to the entry of a final judgment permanently enjoining him from committing future violations of the federal securities laws. Wilson also has agreed to pay disgorgement of $117,045.87 pursuant to a payment plan. Based on Wilson's financial condition, the Commission is not seeking a civil penalty against him and waives the payment of pre- and post-judgment interest. [SEC v. Jonathan Wilson, USDC N.D. Cal. Civil Action No. CV08-5133] (LR-20805A)
Federal Court Grants Summary Judgment and Enters Permanent Injunction and Officer and Director Bar Against Former MCA CEO
The Commission announced that on November 7, the Honorable Judge Marianne O. Battanni of the United States District Court for the Eastern District of Michigan granted the Commission's motion for summary judgment against Patrick D. Quinlan, Sr., the former CEO of MCA Financial Corporation (MCA), for his involvement in a fraudulent scheme perpetrated by MCA. Quinlan was the last remaining defendant in a civil injunctive action filed by the Commission on April 23, 2002. The Complaint in that case alleged that Quinlan and six other defendants violated, or aided and abetted violations of, the antifraud provisions of the federal securities laws, among other things, as a result of their involvement in a financial and offering fraud by MCA. The complaint further alleged that MCA sold $71 million of securitized interests in pools of mortgage loans from 1994 through 1999 while knowingly misrepresenting the risk, rate of return and historical performance of the interests in the offering materials and that as a result, investors lost at least $49 million. The complaint also alleges that MCA engaged in the fraudulent sale of $19 million in debentures between 1994 and 1999 by including financial statements that materially inflated its assets, income and equity in registration statements and annual and quarterly reports filed with the Commission and that as a result, investors in the debentures lost all $19 million invested.
In its 25-page summary judgment opinion, the Court found that Quinlan, as a result of the collateral estoppel effect of his guilty pleas in criminal proceedings, was primarily liable for MCA's misrepresentations of material facts to investors in connection with the offer and sale of MCA pass-through certificates and debentures from 1994 through 1999. The Court further found that Quinlan was liable for, among other things: (1) aiding and abetting MCA's filing of materially false annual and quarterly reports from 1996 through 1998; and (2) making false and misleading statements to MCA's auditors in 1997 and 1998. The Court permanently enjoined Quinlan from violating Section 17(a) of the Securities Act of 1933 (Securities Act) and Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 10b-5, 13b2-1 and 13b2-2 thereunder and from aiding and abetting violations of Sections 13(b)(2)(A), 13(b)(2)(B) and 15(d) of the Exchange Act and Rules 12b-20, 15d-1 and 15d-13 thereunder. The Court also imposed an officer and director bar against Quinlan.
Previously, in February 2004, Quinlan pled guilty to one count of conspiracy to commit mail, wire and bank fraud and to make false statements in a matter within the jurisdiction of a federal agency and one count of making false statements to the Commission for his involvement in MCA's fraudulent scheme. In July 2005, Quinlan was sentenced to ten years in prison and ordered to pay $256.6 million in restitution based on his guilty pleas. U.S. v. Quinlan et al., Case No. 01-80514 (E.D. Mich.). [SEC v. Quinlan, Wells, Pietila, Ajemian, O'Leary, Swain and Lasky, Case No. 02-60082, USDC, E.D. Mich., [Judge Battani] (LR-20806; AAE Rel.2899)
Securities and Exchange Commission v. Biltmore Financial Group, Inc., J. V. Huffman, Jr., Defendants, and Gilda Bolick Huffman, Relief Defendant
The Commission announced that on November 12, it filed a Complaint For Injunctive Relief (Complaint) in the United States District Court for the Western District of North Carolina, alleging an unregistered offering of securities and fraudulent conduct by defendants J. V. Huffman, Jr. (Huffman) of Claremont, North Carolina, and Biltmore Financial Group, Inc. (Biltmore), a North Carolina corporation controlled by Huffman. The Complaint also seeks to recover property transferred to relief defendant Gilda Bolick Huffman (G. Huffman), Huffman's wife. The Honorable Richard L. Voorhees, United States District Judge for the Western District of North Carolina, issued orders freezing the assets of the defendants and relief defendants, appointing a receiver for the defendants, and permanently enjoining the defendants from future violations of the registration and antifraud provisions of the federal securities laws.
The Complaint alleges that Huffman, operating through Biltmore, conducted a Ponzi scheme since 1991, and raised at least $25 million from more than 500 investors in North Carolina and several other states. According to the Complaint, investors made their investments pursuant to an agreement which promised profits that would fluctuate at market rates and which were guaranteed "never to drop below 0%." The Complaint alleges that Huffman initially told investors that Biltmore operated like a mutual fund. After Sept. 11, 2001, in order to assure investors that their investments would not be affected by the volatility of the stock market, Huffman represented that Biltmore pooled investors' funds to purchase and sell mortgages for a profit. According to the Complaint, Biltmore's offering materials, which Huffman provided to investors and prospective investors, also indicated that the investment was protected against loss. The Complaint alleges that Huffman failed to invest client funds as he represented, and used new investor funds to pay profits to earlier investors. The Complaint also alleges that Huffman spent investor funds to subsidize his lavish lifestyle. Further, the Complaint alleges that G. Huffman received benefits from the fraudulent scheme, and was thereby unjustly enriched.
The Complaint alleges that the defendants have violated Sections 5(a), 5(c), and 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: (i) permanent injunctions against future violations; (ii) an order requiring disgorgement of ill-gotten gains or unjust enrichment with prejudgment interest; and (iii) imposition of civil penalties. [SEC v. Biltmore Financial Group, Inc., J. V. Huffman, Jr., Defendants, and Gilda Bolick Huffman, Relief Defendant, Civil Action No. 5:08cv136 (W.D.N.C.)] (LR-20807)
INVESTMENT COMPANY ACT RLEEASES
Wortham Finance, L.P., et al.
A notice has been issued giving interested persons until Dec. 8, 2008, to request a hearing on an application filed by Wortham Finance, L.P., et al. for an order to exempt a vehicle formed for the benefit of certain eligible current employees of John L. Wortham & Son, L.P. from certain provisions of the Investment Company. The vehicle will be an "employees' securities company" as defined in Section 2(a)(13) of the Act. (Rel. IC-28484 - November 10)
Approval of Proposed Rule Changes
The Commission issued an order approving a proposed rule change submitted by Financial Industry Regulatory Authority (SR-FINRA-2008-046), as modified by Amendment No. 1 thereto, to amend the By-Laws of FINRA Regulation to realign the representation of Industry Members on the National Adjudicatory Council to follow more closely the categories of industry representation on the FINRA Board. Publication is expected in the Federal Register during the week of November 17. (Rel. 34-58909)
The Commission approved a proposed rule change [SR-DTC-2008-07] filed by the Depository Trust Company under Section 19(b)(1) of the Exchange Act. The approved rule change enhances the Profile Modification System of the Direct Registration System in order to allow "move all" instructions, allow a second taxpayer identification number or social security number to be used to verify instructions, and provide for new participant fees to reimburse transfer agents for the cost of implementing and maintaining the proposed Profile Modification System enhancements. Publication is expected in the Federal Register during the week of November 17. (Rel. 34-58910)
The Commission has issued an order approving a proposed rule change (SR-CBOE-2008-96) filed by the Chicago Board Options Exchange to Permit $1 Strikes for MNX Options. Publication is expected in the Federal Register during the week of November 17. (Rel. 34-58924)
The Commission issued an order approving a proposed rule change submitted by NYSE Arca, through its wholly owned subsidiary, NYSE Arca Equities, Inc. (SR-NYSEArca-2008-104), relating to continued listing criteria applicable to Equity Linked Notes and "Other Securities." Publication is expected in the Federal Register during the week of November 17. (Rel. 34-58925)
Immediate Effectiveness of Proposed Rule Changes
A proposed rule change filed by the NASDAQ Stock Market (SR-NASDAQ-2008-085) to modify the procedures applicable to listed companies that are late in filing a required periodic report with the Commission 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 November 17. (Rel. 34-58911)
A proposed rule change filed by the New York Stock Exchange (SR-NYSE-2008-111) to establish a system of rebates for Designated Market Makers 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 November 17. (Rel. 34-58921)
A proposed rule change filed by NASDAQ OMX PHLX (SR-Phlx-2008-75) relating to the definition of "Market for the Underlying Security" 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 November 17. (Rel. 34-58929)
Proposed Rule Change
The NYSE Arca, through its wholly owned subsidiary, NYSE Arca Equities, Inc., filed with the Securities and Exchange Commission a proposed rule change (SR-NYSEArca-2008-123) and Amendment No. 1 thereto pursuant to Rule 19b-4 under the Securities Exchange Act of 1934 relating to the listing and trading of Trust Certificates. Publication is expected in the Federal Register during the week of November 17. (Rel. 34-58920)
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