SEC Improves Disclosure for Mutual Fund Investors
The Securities and Exchange Commission today voted unanimously to improve mutual fund disclosure by requiring that funds provide investors with a concise summary - in plain English - of the key information they need to make informed investment decisions. The new summary prospectus will appear at the front of a fund's prospectus.
The Commission also approved amendments to encourage funds to make greater use of the Internet so investors can receive more detailed information in a way that best suits their needs.
"Today's action will help mutual fund investors more easily obtain the key information they need - such as the description of the fund's investment objectives and strategies, fees, risks, and performance," said SEC Chairman Christopher Cox. "The summary prospectus will quickly give investors a basic understanding of the fund and will permit them readily to compare one fund to another. Investors will also have access to more searchable information about mutual funds on the Internet - an important improvement in their ability to comparison shop."
Andrew J. Donohue, Director of the SEC's Division of Investment Management, added, "Many investors often find current fund prospectuses to be lengthy, legalistic and confusing. This mutual fund disclosure framework will provide information that is easier to use and more readily accessible, while retaining the comprehensive quality of the mutual fund information available today."
Specifically, the Commission adopted the following improvements to mutual fund disclosure:
Summary Information at the Front of the Prospectus
The Commission adopted amendments to Form N-1A, the registration form for mutual funds, to require that every mutual fund include key information at the front of its statutory prospectus about the fund's investment objectives and strategies, risks, and costs. The summary will also include brief information regarding investment advisers and portfolio managers, purchase and sale procedures, tax consequences, and financial intermediary compensation. Funds will be required to provide the summary information in plain English and in a standardized order.
New Prospectus Delivery Option for Mutual Fund Securities
The Commission adopted a new rule that permits sending a summary prospectus to satisfy prospectus delivery requirements provided that the mutual fund's summary prospectus, statutory prospectus, and other specified information are available online. The summary prospectus must have the same information in the same order as the summary at the front of the statutory prospectus. In addition:
SEC Announces Panelists and Agenda for Mark-to-Market Accounting Roundtable
The Securities and Exchange Commission today announced the expected panelists for its November 21 roundtable concerning mark-to-market accounting.
The roundtable will be held at the SEC's Washington, D.C., headquarters and will begin at 9:30 a.m. ET with opening remarks from SEC Chairman Christopher Cox. The roundtable will have one panel discussion focused on:
Scheduled panelists include investors, issuers, auditors, and others with experience in mark-to-market accounting by financial institutions:
In addition, the following individuals are scheduled to participate in the panel discussion as observers:
The roundtable is expected to conclude at approximately 12:30 p.m. ET.
The roundtable will be open to the public with seating on a first-come, first-serve basis. Doors will open at 9:00 a.m. ET. Visitors will be subject to security checks.
Live audio and video webcasts as well as materials related to the roundtable are available on the SEC Web site. (Press Rel. 2008-276)
Change in the Meeting: Deletion of an Item
The following item was not considered during the open meeting on Wednesday, Nov. 19, 2008:
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.
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 Steven Sirianni
An Administrative Law Judge has issued an Initial Decision in Steven Sirianni, Administrative Proceeding No. 3-13084. The Initial Decision finds that the U.S. District Court for the Southern District of New York permanently enjoined Sirianni from future violations of Section 17(a) of the Securities Act of 1933, Sections 10(b) and 15(a)(1) of the Securities Exchange Act of 1934 (Exchange Act), and Exchange Act Rule 10b-5. In addition, the district court ordered Sirianni to disgorge $75,800 in ill-gotten gains, plus $23,020.37 in prejudgment interest, and to pay a civil penalty of $110,000. The Initial Decision concludes that, pursuant to Section 15(b)(6) of the Exchange Act, it is in the public interest to bar Sirianni from association with any broker or dealer. (Initial Decision No. 362; File No. 3-13084)
In the Matter of Ricardo H. Goldman
On November 19, 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 Ricardo H. Goldman. The Order finds that Goldman was the sole managing member of E Trade Fund, LLC, an unregistered broker-dealer. The Order further finds that on October 22, 2008, a judgment was entered by consent against Goldman, permanently enjoining him from future violations of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, and Sections 10(b) and 15(a)(1) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, in the civil action titled Securities and Exchange Commission v. Goldman, Civil Action Number 08-22666-CIV-LENARD, in the United States District Court for the Southern District of Florida.
The Order finds that the Commission's complaint alleged that from May 2004 through February 2006, Goldman, through his company E Trade Fund, at a minimum recklessly made material misrepresentations and omissions to investors in connection with a day trading operation he ran concerning, among other things, the risks associated with day trading, commission rebates he was receiving, and the insurance that protected investors. The complaint also alleged that Goldman violated the broker-dealer registration provisions. The complaint further alleged that Goldman, through E Trade Fund, made material misstatements and omissions in connection with an unregistered offering of securities concerning, among others, the insurance that protected investors, and the safety and security of the investment.
Based on the above, the Order bars Goldman from association with any broker or dealer. Goldman consented to the issuance of the Order without admitting or denying any of the findings in the Order, except as to the Commission's jurisdiction over him and the entry of the permanent injunction against him. (Rel. 34-58976; File No. 3-13293)
SEC v. J.C. Reed & Company, Inc., et al.
The Commission announced today that, on Nov. 18, 2008, it filed a Complaint For Injunctive and Other Relief (Complaint) in the United States District Court for the Middle District of Tennessee against the following four defendants arising out of an alleged $11 million securities offering fraud based in Franklin, Tennessee: (1) J.C. Reed & Company, Inc. (JC Parent); (2) J.C. Reed Advisory Group, LLC (JC Advisory); (3) Barron A. Mathis (Mathis); and, (4) the estate of John C. Reed, Lana L. Reed, Executor (Reed's Estate). Corporate founder John C. Reed (Reed) died on June 7, 2008. JC Advisory, a wholly-owned subsidiary of JC Parent, is registered with the Commission as an investment adviser. In addition to JC Advisory, JC Parent owned a mortgage banking subsidiary and several other related businesses. JC Parent and JC Advisory recently filed bankruptcy petitions in United States Bankruptcy Court for the Middle District of Tennessee.
The Commission's Complaint alleges that, at various times from no later than 2005 through at least September 2008, JC Parent, JC Advisory, Reed and Mathis facilitated the offer and sale of more than $11 million of JC Parent stock in unregistered transactions to over 100 investors in several states. According to the Complaint, JC Parent, JC Advisory, and Reed misrepresented and omitted material facts to investors relating to the value of the investors' stock, JC Parent's revenues and profitability, the use of key man life insurance proceeds for redemptions of Reed's JC Parent stock, and undisclosed sales commissions. The Complaint also alleges that Mathis promoted JC Parent stock to advisory clients and misrepresented material facts to investors about undisclosed sales commissions. In addition, the Complaint alleges that JC Advisory used JC Parent's inflated stock values to falsely report assets under management as JC Advisory's basis for registration with the Commission and on reports filed with the Commission.
In its Complaint, the Commission seeks (1) preliminary and permanent injunctions from future violations against JC Parent, JC Advisory and Mathis; (2) disgorgement of ill-gotten gains and unjust enrichment, with prejudgment interest, from JC Parent, JC Advisory, Mathis, and Reed's Estate; (3) civil money penalties from JC Parent, JC Advisory, and Mathis; and, (4) an order expediting discovery, preventing document destruction, and granting such other relief as the court may deem appropriate. The Commission seeks such relief based on (1) alleged violations by JC Parent, JC Advisory, Reed, and Mathis of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder; (2) alleged violations by JC Advisory, Reed, and Mathis of Sections 206(1) and 206(2) of the Investment Advisers Act of 1940 (Advisers Act); and, (3) alleged violations by JC Advisory of Sections 203A and 207 of the Advisers Act.
The Commission acknowledges the assistance and cooperation of the State of Tennessee Department of Commerce and Insurance, Securities Division, in bringing this case. [SEC v. J.C. Reed & Company, Inc., J.C. Reed Advisory Group, LLC, Barron A. Mathis, and Estate of John C. Reed, Lana L. Reed, Executor, Civil Action No. 3:08-CV-1112 (M.D.TN)] (LR-20813)
SEC Charges Two Day-Traders and Former Chief Executive Officer of Brokerage Firm for Participating in Manipulative Short Selling Scheme
The Commission today filed a civil injunctive action against two day-traders, Robert Todd Beardsley and George Lindenberg, who perpetrated a manipulative short selling scheme through brokerage accounts at a now defunct broker-dealer, Redwood Trading LLC. As alleged in the complaint, Beardsley and Lindenberg engaged in their manipulative short selling scheme by repeatedly selling short securities in violation of the then-existing short sale rule, commonly referred to as the "uptick rule," with the intent to artificially depress the price of shares that they had sold short in order to enable them to cover their short positions at favorable prices. In a related civil injunctive action, the Commission alleges that Dennis McNell, the former Chief Executive Officer and Chief Operations Officer of Redwood, aided and abetted the illegal short selling scheme. The complaint also alleges that McNell engaged in an unrelated fraudulent scheme to hide substantial trading losses that he had incurred in a Redwood proprietary account.
According to the allegations in the complaint, Beardsley devised a scheme by which he routinely executed short sales while the stock price was declining, in violation of the uptick rule, using trading software made available to Beardsley by Redwood. Subsequently, Beardsley recruited Lindenberg to the scheme to assist him in carrying out the violative trading. As part of the alleged scheme, Beardsley and Lindenberg also failed to mark their orders as short sales in order to create the false appearance that their orders were long. McNell enabled Beardsley's and Lindenberg's manipulative scheme by disabling a feature of the trading software that was programmed to prevent violations of the uptick rule. To conceal their involvement in the illegal scheme, Beardsley and Lindenberg traded through Redwood accounts in the name of two nominees. Beardsley and Lindenberg allegedly placed thousands of trades through these accounts to carry out their strategy of driving down the price of a stock by rapidly executing illegal short sales in a given stock. By successively selling shares of stock at lower prices, the complaint alleges that Beardsley and Lindenberg intended to induce others to sell in order to further depress the price of the stock. Beardsley and Lindenberg then took advantage of the downward price movement by buying shares to cover their illegal short sales. Beardsley's and Lindenberg's alleged scheme was highly profitable, yielding approximately $2,400,000 in illicit gains in less than a year.
In a separate complaint against McNell, the SEC also alleges that, from July 2004 through August 2004, McNell surreptitiously caused over ninety unprofitable trades, resulting in approximately $140,000 of losses, to be transferred into a Redwood error account from a day-trading account in which McNell had incurred these losses, which caused Redwood to violate its net capital requirements and maintain inaccurate books and records. McNell is also charged with aiding and abetting Redwood's violations of its net capital and books and records requirements.
The SEC's complaint, filed in the United States District Court for the Southern District of New York, charges Beardsley and Lindenberg with having violated the antifraud provisions of the federal securities laws, Section 17(a) of the Securities Act of 1933 (Securities Act), and Sections 9(a)(2) and 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Exchange Act Rule 10b-5, and provisions relating to short sales of securities, Section 10(a)(1) of the Exchange Act and former Exchange Act Rule 10a-1. Without admitting or denying the allegations in the complaint, Lindenberg has consented to the entry of a final judgment that permanently enjoins him from committing future violations of the above-referenced provisions (except former Rule 10a-1, which no longer is in effect), and based on Lindenberg's financial condition, orders him to pay partial disgorgement of $65,000, and does not impose a civil penalty. The complaint seeks a permanent injunction, disgorgement (with pre-judgment interest), and civil monetary penalties against Beardsley.
In the complaint against McNell, also filed in the United States District Court for the Southern District of New York, the SEC charges McNell with having (i) violated the antifraud provisions, Sections 9(a)(2) and 10(b) of the Exchange Act and Exchange Act Rule 10b-5, and provisions relating to short sales of securities, Section 10(a)(1) of the Exchange Act and former Exchange Act Rule 10a-1, and (ii) aided and abetted Redwood's violations of various broker-dealer net capital, and books and records provisions, Sections 15(c)(3) and 17(a) of the Exchange Act and Exchange Act Rules 15c3-1, 17a-3, and 17a-4(j). Without admitting or denying the allegations in the complaint, McNell has consented to the entry of a final judgment that permanently enjoins him from either committing or aiding and abetting future violations of the above-referenced provisions (except former Rule 10a-1), and based on McNell's financial condition, does not impose a civil penalty. As part of his settlement, McNell has also agreed to the issuance of an administrative order that bars him from association with any broker or dealer, with the right to reapply after five years in a non-supervisory capacity. [SEC v. Robert Todd Beardsley and George Lindenberg, United States District Court for the Southern District of New York, Civil Action No. 08-cv-10054 (LBS); SEC v. Dennis K. McNell, United States District Court for the Southern District of New York, Civil Action No. 08-cv-10053 (BSJ)] (LR-20814A)
INVESTMENT COMPANY ACT RELEASES
The Zweig Total Return Fund, Inc., et al.
An order has been issued on an application filed by The Zwieg Total Return Fund, Inc., et al. under Section 6(c) of the Investment Company Act for an exemption from Section 19(b) of the Act and Rule 19b-1 under the Act. The order permits certain registered closed-end management investment companies to make periodic distributions of long-term capital gains (i) with respect to their common stock as part of a managed distribution plan as frequently as twelve times each year, and (ii) with respect to their preferred stock as frequently as required by the terms of such preferred stock. (Rel. IC-28485 - November 17)
Boulder Total Return Fund, Inc., et al.
An order has been issued on an application filed by Boulder Total Return Fund, Inc., et al. under Section 6(c) of the Investment Company Act for an exemption from Section 19(b) of the Act and Rule 19b-1 under the Act. The order permits certain registered closed-end management investment companies to make periodic distributions of long-term capital gains (i) with respect to their common stock as part of a managed distribution plan as frequently as twelve times each year, and (ii) with respect to their preferred stock as frequently as required by the terms of such preferred stock. (Rel. IC-28486 - November 17)
Proposed Rule Changes
The New York Stock Exchange filed a proposed rule change (SR-NYSE-2008-119) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 to establish the New York Block Exchange. Publication is expected in the Federal Register during the week of November 17. (Rel. 34-58969)
The New York Stock Exchange filed a proposed rule change (SR-NYSE-2008-120) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 relating to the Limited Liability Company Agreement of New York Block Exchange, a facility of NYSE. Publication is expected in the Federal Register during the week of November 17. (Rel. 34-58970)
Immediate Effectiveness of Proposed Rule Change
A proposed rule change filed by the New York Stock Exchange (SR-NYSE-2008-115) to amend Rule 104T to make certain technical amendments to the Rule to conform it to the exchange's recently instituted New Market Model Pilot 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. 34-58971)
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