U.S. Securities & Exchange Commission
SEC Seal
Home | Previous Page
U.S. Securities and Exchange Commission

SEC News Digest

Issue 2008-239
December 11, 2008

COMMISSION ANNOUNCEMENTS

Commission Meetings

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, December 17, 2008 - 10:00 a.m.

The subject matter of the open meeting will be:

  1. The Commission will consider whether to approve the 2009 budget of the Public Company Accounting Oversight Board and will consider the related annual accounting support fee for the Board under Section 109 of the Sarbanes-Oxley Act of 2002.
  2. The Commission will consider whether to adopt amendments to provide for companiesí financial statement information to be filed with the Commission in interactive data format, according to a specified phase-in schedule.
  3. The Commission will consider whether to adopt amendments to provide for mutual fund risk/return summary information to be filed with the Commission in interactive data format. The Commission will also consider whether to adopt amendments to permit investment companies to submit portfolio holdings information under the Commissionís interactive data voluntary program without being required to submit other financial information.
  4. The Commission will consider whether to adopt amendments that would define terms related to annuity contracts under the Securities Act of 1933, and whether to adopt amendments related to periodic reporting requirements under the Securities Exchange Act of 1934.

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.


ENFORCEMENT PROCEEDINGS

Commission Revokes Registration of Securities of Pandora Industries, Inc. (n/k/a Creston Moly Corp.) for Failure to Make Required Periodic Filings

On December 11, the Commission revoked the registration of each class of registered securities of Pandora Industries, Inc. (n/k/a Creston Moly Corp.) (Creston) for failure to make required periodic filings with the Commission.

Without admitting or denying the findings in the Order, except as to jurisdiction, which it admitted, Creston consented to the entry of an Order Making Findings and Revoking Registration of Securities Pursuant to Section 12(j) of the Securities Exchange Act of 1934 as to Pandora Industries, Inc. (n/k/a Creston Moly Corp.) finding that it had failed to comply with Section 13(a) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 13a-1 and 13a-13 thereunder and revoking the registration of each class of Creston’s securities pursuant to Section 12(j) of the Exchange Act. This order settled the charges brought against Creston in In the Matter of Pacific Industrial Corp., et al., Administrative Proceeding File No. 3-13292.

Brokers and dealers should be alert to the fact that Exchange Act Section 12(j) provides, in pertinent part, as follows:

No member of a national securities exchange, broker, or dealer shall make use of the mails or any means or instrumentality of interstate commerce to effect any transaction in, or to induce the purchase or sale of, any security the registration of which has been and is suspended or revoked . . . .

For further information see Order Instituting Administrative Proceedings and Notice of Hearing Pursuant to Section 12(j) of the Securities Exchange Act of 1934, In the Matter of Pacific Industrial Corp., et al., Administrative Proceeding File No. 3-13292, Exchange Act Release No. 58964 (Nov. 17, 2008). (Rel. 34-59078; File No. 3-13292)


Commission Revokes Registration of Securities of Lighthouse Partners, Inc. for Failure to Make Required Periodic Filings

On December 11, the Commission revoked the registration of each class of registered securities of Lighthouse Partners Inc. (Lighthouse) for failure to make required periodic filings with the Commission.

Without admitting or denying the findings in the Order, except as to jurisdiction, which it admitted, Lighthouse consented to the entry of an Order Making Findings and Revoking Registration of Securities Pursuant to Section 12(j) of the Securities Exchange Act of 1934 as to Lighthouse Partners, Inc. finding that it had failed to comply with Section 13(a) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 13a-1 and 13a-13 thereunder and revoking the registration of each class of Lighthouse Partners’s securities pursuant to Section 12(j) of the Exchange Act. This order settled the charges brought against Lighthouse Partners Inc. In the Matter of Graystone World Wide, Inc., et al., Administrative Proceeding File No. 3-13290.

Brokers and dealers should be alert to the fact that Exchange Act Section 12(j) provides, in pertinent part, as follows:

No member of a national securities exchange, broker, or dealer shall make use of the mails or any means or instrumentality of interstate commerce to effect any transaction in, or to induce the purchase or sale of, any security the registration of which has been and is suspended or revoked . . . .

For further information see Order Instituting Administrative Proceedings and Notice of Hearing Pursuant to Section 12(j) of the Securities Exchange Act of 1934, In the Matter of Graystone World Wide, Inc., et al., Administrative Proceeding File No. 3-13290, Exchange Act Release No. 58962 (Nov. 17, 2008). (Rel. 34-59079; File No. 3-13290)


Commission Revokes Registration of Securities of Maritime Partners, Inc. for Failure to Make Required Periodic Filings

On December 11, the Commission revoked the registration of each class of registered securities of Maritime Partners Inc. (Maritime) for failure to make required periodic filings with the Commission.

Without admitting or denying the findings in the Order, except as to jurisdiction, which it admitted, Maritime consented to the entry of an Order Making Findings and Revoking Registration of Securities Pursuant to Section 12(j) of the Securities Exchange Act of 1934 as to Maritime Partners, Inc. finding that it had failed to comply with Section 13(a) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 13a-1 and 13a-13 thereunder and revoking the registration of each class of Maritime Partners’s securities pursuant to Section 12(j) of the Exchange Act. This order settled the charges brought against Maritime Partners Inc. In the Matter of Graystone World Wide, Inc., et al., Administrative Proceeding File No. 3-13290.

Brokers and dealers should be alert to the fact that Exchange Act Section 12(j) provides, in pertinent part, as follows:

No member of a national securities exchange, broker, or dealer shall make use of the mails or any means or instrumentality of interstate commerce to effect any transaction in, or to induce the purchase or sale of, any security the registration of which has been and is suspended or revoked . . . .

For further information see Order Instituting Administrative Proceedings and Notice of Hearing Pursuant to Section 12(j) of the Securities Exchange Act of 1934, In the Matter of Graystone World Wide, Inc., et al., Administrative Proceeding File No. 3-13290, Exchange Act Release No. 58962 (Nov.17, 2008). (Rel. 34-59080; File No. 3-13290)


In the Matter of David K. Donovan

On December 11, the Commission issued an Order Making Findings and Imposing Remedial Sanctions and a Cease-and-Desist Order Pursuant to Section 203(f) of the Investment Advisers Act of 1940 and Sections 9(b) and 9(f) of the Investment Company Act of 1940 as to David K. Donovan (Order). The Order finds that from January 1, 2002 through October 2004, David K. Donovan (Donovan), a sector trader of FMR Co.’s (Fidelity) equity trading desk, accepted compensation prohibited by Section 17(e)(1) of the Investment Company Act from representatives of brokerage firms with which he conducted business on behalf of Fidelity. The prohibited compensation Donovan accepted primarily consisted of some or all of his lodging and other travel expenses on many trips with brokers, most of which were by private jet, to destinations such as the Super Bowl, Las Vegas and the Bahamas. In addition, brokerage firms provided Donovan with a case of expensive wine, as well as tickets to several sporting events that Donovan did not attend with the representatives of brokerage firms. As a result of the conduct described above, Donovan willfully violated Section 17(e)(1) of the Investment Company Act.

Based on the above, the Order censures Donovan and orders that he cease and desist from committing or causing any violations and any future violations of Section 17(e)(1) of the Investment Company Act, disgorge $120,816 in ill-gotten gains plus prejudgment interest of $42,921.51, and pay a civil monetary penalty of $45,000. Donovan consented to the issuance of the Order without admitting or denying any of the findings in the Order, except jurisdiction, which he admitted. (Rel. IA-2812; IC-28531; File No. 3-12978)


In the Matter of Jeffrey D. Harris

On December 11, the Commission issued an Order Making Findings and Imposing Remedial Sanctions and a Cease-and-Desist Order Pursuant to Section 203(f) of the Investment Advisers Act of 1940 and Sections 9(b) and 9(f) of the Investment Company Act of 1940 as to Jeffrey D. Harris (Order). The Order finds that from Jan. 1, 2002 through October 2004, Jeffrey D. Harris (Harris), a sector trader of FMR Co.’s (Fidelity) equity trading desk, accepted compensation prohibited by Section 17(e)(1) of the Investment Company Act from representatives of brokerage firms with which he conducted business on behalf of Fidelity. The prohibited compensation Harris accepted consisted of tickets to several events as well as a significant amount of travel from representatives of brokerage firms, consisting of some or all of his lodging and travel expenses on a significant number of trips with brokers to destinations such as a golf club in South Carolina and to the Super Bowl. Many of the trips were by private jet and were attended by other Fidelity employees. As a result of the conduct described above, Harris willfully violated Section 17(e)(1) of the Investment Company Act.

Based on the above, the Order censures Harris and orders that he cease and desist from committing or causing any violations and any future violations of Section 17(e)(1) of the Investment Company Act, disgorge $45,000 in ill-gotten gains plus prejudgment interest of $15,986.84, and pay a civil monetary penalty of $30,000. Harris consented to the issuance of the Order without admitting or denying any of the findings in the Order, except jurisdiction, which he admitted. (Rel. IA-2813; File No. 3-12978)


In the Matter of Timothy J. Burnieika

On December 11, the Commission issued an Order Making Findings and Imposing Remedial Sanctions and a Cease-and-Desist Order Pursuant to Section 203(f) of the Investment Advisers Act of 1940 and Sections 9(b) and 9(f) of the Investment Company Act of 1940 as to Timothy J. Burnieika (Order). The Order finds that from January 1, 2002 through October 2004, Timothy J. Burnieika (Burnieika), a primary trader of FMR Co.’s (Fidelity) equity trading desk, accepted compensation prohibited by Section 17(e)(1) of the Investment Company Act from representatives of brokerage firms with which he conducted business on behalf of Fidelity. The prohibited compensation Burnieika accepted consisted primarily of premium tickets to professional sporting events. In addition, representatives of brokerage firms paid for some of his travel, lodging and other costs on a number of trips, certain of which were by private jet. As a result of the conduct described above, Burnieika willfully violated Section 17(e)(1) of the Investment Company Act.

Based on the above, the Order censures Burnieika and orders that he cease and desist from committing or causing any violations and any future violations of Section 17(e)(1) of the Investment Company Act, disgorge $39,000 in ill-gotten gains plus prejudgment interest of $13,420, and pay a civil monetary penalty of $30,000. Burnieika consented to the issuance of the Order without admitting or denying any of the findings in the Order, except jurisdiction, which he admitted. (Rel. IA-2814; File No. 3-12978)


In the Matter of Scott E. DeSano

On December 11, the Commission issued an Order Making Findings and Imposing Remedial Sanctions and a Cease-and-Desist Order Pursuant to Sections 203(f) and 203(k) of the Investment Advisers Act of 1940 and Sections 9(b) and 9(f) of the Investment Company Act of 1940 as to Scott E. DeSano (Order). The Order finds that from January 1, 2002 through October 2004, DeSano and ten Fidelity equity traders whom he supervised accepted a significant amount of travel, entertainment and/or gifts from brokerage firms that sought and obtained orders to buy or sell securities on behalf of Fidelity’s advisory clients, including the Fidelity Funds. Those brokerage firms each received millions of dollars in commission revenue for handling orders from Fidelity’s advisory clients’ accounts. Among the items accepted by DeSano from brokers were a three-day trip by private jet to Las Vegas and Cabo San Lucas, Mexico, travel by private jet to a Fidelity trader’s bachelor party in Miami, golf excursions in locations such as Pebble Beach, California and Shinnecock, New York, lodging at fine hotels, and more than fifty tickets to over twenty events, including Celtics and Red Sox playoff games and a Rolling Stones concert. The ten equity traders whom DeSano supervised, in aggregate, accepted from brokers dozens of expensive trips, frequently by private jet, including excursions to the Super Bowl, family vacations to Bermuda, Nantucket and the Caribbean, golf outings at exclusive clubs in Florida and South Carolina, weekends in Las Vegas, lodging at fine hotels, and, premium tickets to events including the World Series, the U.S. Open, and Wimbledon, and dozens of other sporting events and concerts.

In addition, the Order finds that DeSano was a cause of Fidelity’s violation of Section 206(2) of the Advisers Act because, as head of the equity trading desk, he did not ensure that factors other than best execution, (i.e., certain traders’ receipt of travel, entertainment and gifts from, and family or romantic relationships with, brokers) were excluded from the traders’ selection of brokers. DeSano was also a cause of Fidelity’s violation of Section 206(2) of the Advisers Act because he did not disclose that certain traders received travel, entertainment and gifts from, and had family and romantic relationships with, brokers doing business with Fidelity.

Finally, the Order finds that, at periodic presentations on behalf of Fidelity concerning Fidelity’s equity trading to a committee of the trustees of the Fidelity Funds, DeSano failed to disclose that certain equity traders received travel, entertainment and gifts from, and had family or romantic relationships with, brokers doing business with Fidelity.

Based on the above, the Order also finds that DeSano was a cause of Fidelity’s violations of Section 206(2) of the Advisers Act, that he willfully violated Section 17(e)(1) of the Investment Company Act by accepting prohibited compensation in the form of travel, entertainment and gifts, and that he took inadequate steps to limit traders’ receipt of travel, entertainment and gifts, failed to monitor their receipt in any systematic way, and, as a result, failed reasonably to supervise the ten equity traders with a view to preventing their violations of Section 17(e)(1) of the Investment Company Act. The Order bars DeSano from association with any investment adviser, and prohibits him from serving or acting as an employee, officer, director, member of an advisory board, investment adviser or depositor of, or principal underwriter for, a registered investment company or affiliated person of such investment adviser, depositor, or principal underwriter, with the right to reapply for association after one year; and orders that he cease and desist from committing or causing any violations and any future violations of Section 17(e)(1) of the Investment Company Act and Section 206(2) of the Investment Advisers Act, disgorge $106,000 in ill-gotten gains plus prejudgment interest of $36,475, and pay a civil monetary penalty of $125,000. DeSano consented to the issuance of the Order without admitting or denying any of the findings in the Order, except jurisdiction, which he admitted. (Rel. IA-2815; File No. 3-12978)


In the Matter of Edward S. Driscoll

On December 11, the Commission issued an Order Making Findings and Imposing Remedial Sanctions and a Cease-and-Desist Order Pursuant to Section 203(f) and 203(k) of the Investment Advisers Act of 1940 and Sections 9(b) and 9(f) of the Investment Company Act of 1940 as to Edward S. Driscoll (Order). The Order finds that from January 1, 2002 through October 2004, Edward S. Driscoll (Driscoll), a sector trader of FMR Co.’s (Fidelity) equity trading desk, accepted compensation prohibited by Section 17(e)(1) of the Investment Company Act from representatives of brokerage firms with which he conducted business on behalf of Fidelity. The prohibited compensation Driscoll accepted consisted primarily of premium tickets to professional sporting events. In addition, representatives of brokerage firms paid for some of his travel, lodging and other costs on a number of trips, certain of which were by private jet. Finally, Driscoll failed to disclose that a broker doing business with Fidelity facilitated his illegal gambling, a material conflict of interest to Fidelity’s clients. As a result of the conduct described above, Driscoll willfully violated Section 17(e)(1) of the Investment Company Act and caused Fidelity’s violations of Section 206(2) of the Investment Company Act.

Based on the above, the Order censures Driscoll and orders that he cease and desist from committing or causing any violations and any future violations of Section 17(e)(1) of the Investment Company Act and Section 206(2) of the Investment Advisers Act, disgorge $39,000 in ill-gotten gains plus prejudgment interest of $13,549.33, and pay a civil monetary penalty of $30,000. Driscoll consented to the issuance of the Order without admitting or denying any of the findings in the Order, except jurisdiction, which he admitted. (Rel. IA-2816; File No. 3-12978)


In the Matter of Christopher J. Horan

On December 11, the Commission issued an Order Making Findings and Imposing Remedial Sanctions and a Cease-and-Desist Order Pursuant to Section 203(f) of the Investment Advisers Act of 1940 and Sections 9(b) and 9(f) of the Investment Company Act of 1940 as to Christopher J. Horan (Order). The Order finds that from January 1, 2002 through October 2004, Christopher J. Horan (Horan), a primary trader of FMR Co.’s (Fidelity) equity trading desk, accepted compensation prohibited by Section 17(e)(1) of the Investment Company Act from representatives of brokerage firms with which he conducted business on behalf of Fidelity. The prohibited compensation Horan accepted consisted of a significant amount of travel, including by private jet, lodging, and a number of tickets to sporting events, including certain Super Bowl and playoff games. As a result of the conduct described above, Horan willfully violated Section 17(e)(1) of the Investment Company Act.

Based on the above, the Order censures Horan and orders that he cease and desist from committing or causing any violations and any future violations of Section 17(e)(1) of the Investment Company Act, disgorge $63,000 in ill-gotten gains plus prejudgment interest of $21,678.86, and pay a civil monetary penalty of $30,000. Horan consented to the issuance of the Order without admitting or denying any of the findings in the Order, except jurisdiction, which he admitted. (Rel. IA-2817; File No. 3-12978)


In the Matter of Steven P. Pascucci

On December 11, the Commission issued an Order Making Findings and Imposing Remedial Sanctions and a Cease-and-Desist Order Pursuant to Section 203(f) of the Investment Advisers Act of 1940 and Sections 9(b) and 9(f) of the Investment Company Act of 1940 as to Steven P. Pascucci (Order). The Order finds that from January 1, 2002 through October 2004, Steven P. Pascucci (Pascucci), a primary trader of FMR Co.’s (Fidelity) equity trading desk, accepted compensation prohibited by Section 17(e)(1) of the Investment Company Act from representatives of brokerage firms with which he conducted business on behalf of Fidelity. The prohibited compensation Pascucci accepted consisted of numerous tickets to professional sporting events. In addition, representatives of brokerage firms paid for some of his travel, lodging and other costs on several trips, including a private jet trip from Dallas to Boston after a Dallas Cowboys game. As a result of the conduct described above, Pascucci willfully violated Section 17(e)(1) of the Investment Company Act.

Based on the above, the Order censures Pascucci and orders that he cease and desist from committing or causing any violations and any future violations of Section 17(e)(1) of the Investment Company Act, disgorge $44,339 in ill-gotten gains plus prejudgment interest of $15,256.81, and pay a civil monetary penalty of $30,000. Pascucci consented to the issuance of the Order without admitting or denying any of the findings in the Order, except jurisdiction, which he admitted. (Rel. IA-2818; File No. 3-12978)


In the Matter of Kirk C. Smith

On December 11, the Commission issued an Order Making Findings and Imposing Remedial Sanctions and a Cease-and-Desist Order Pursuant to Section 203(f) of the Investment Advisers Act of 1940 and Sections 9(b) and 9(f) of the Investment Company Act of 1940 as to Kirk C. Smith (Order). The Order finds that from January 1, 2002 through October 2004, Kirk C. Smith (Smith), a sector trader of FMR Co.’s (Fidelity) equity trading desk, accepted compensation prohibited by Section 17(e)(1) of the Investment Company Act from representatives of brokerage firms with which he conducted business on behalf of Fidelity. The prohibited compensation Smith accepted consisted of a significant amount of travel and gifts, including the use of a private jet for a vacation in the Caribbean for Smith and a family member, plus numerous tickets to sporting events. As a result of the conduct described above, Smith willfully violated Section 17(e)(1) of the Investment Company Act.

Based on the above, the Order censures Smith and orders that he cease and desist from committing or causing any violations and any future violations of Section 17(e)(1) of the Investment Company Act, disgorge $56,690 in ill-gotten gains plus prejudgment interest of $19,506.89, and pay a civil monetary penalty of $30,000. Smith consented to the issuance of the Order without admitting or denying any of the findings in the Order, except jurisdiction, which he admitted. (Rel. IA-2819; File No. 3-12978)


In the Matter of Zurich Financial Services and Converium Holding AG, Now Known As Scor Holding (Switzerland) Ltd.

On December 11, the Commission announced settled securities fraud charges against Zurich Financial Services (Zurich) and Converium Holding AG (Converium), now known as SCOR Holding (Switzerland) Ltd., involving the use of finite reinsurance transactions to inflate improperly Converium’s financial performance. In connection with the settlements, the Commission issued an Order Instituting Cease-and-Desist Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings, and Imposing a Cease-and-Desist Order against Zurich and an Order Instituting Cease-and-Desist Proceedings Pursuant to Section 8A of the Securities Act of 1933 and Section 21C of the Securities Exchange Act of 1934, Making Findings, and Imposing a Cease-and-Desist Order against Converium (the Orders). In addition, in a related civil action filed in the U.S. District Court for the Southern District of New York, without admitting or denying the allegations in the SEC’s complaint, Zurich consented to pay a $25 million penalty and $1 in disgorgement.

The Orders find that beginning in 1999, the management of Zurich’s reinsurance group, which operated under the name Zurich Re, developed three reinsurance transactions for the purpose of obtaining the financial benefits of reinsurance accounting. However, in order for a company to obtain the benefits of reinsurance accounting, the reinsurance transaction must transfer risk. Here, Zurich Re management designed the transactions to make them appear to transfer risk to third-party reinsurers, when, in fact, no risk was transferred outside of Zurich-owned entities. For two of the transactions at issue, Zurich Re ceded risk to third-party reinsurers, but took it back through reinsurance agreements – known as retrocessions – with another Zurich entity. For the third transaction, Zurich Re ceded the risk to a third-party reinsurer but simultaneously entered into an undisclosed side agreement with the reinsurer pursuant to which Zurich Re agreed to hold the reinsurer harmless for any losses the reinsurer realized under the reinsurance contracts. Because the ultimate risk under the reinsurance contracts remained with Zurich-owned entities, these transactions should not have been accounted for as reinsurance.

The Orders also found that in March 2001, Zurich announced its intent to spin off its reinsurance group in an initial public offering. Zurich then created and capitalized Converium, which assumed the rights and obligations of Zurich’s assumed reinsurance business. On Dec. 11, 2001, Zurich spun off Converium in an IPO. At the conclusion of the IPO, the members of Zurich Re management responsible for the three resinsurance transactions ceased to be affiliated with Zurich.

The Orders further find that as a result of the improper accounting treatment the reinsurance transactions received, the historical financial statements in Converium’s IPO documents, including the Form F-1 it filed with the Commission, were materially misleading. Among other things, Converium understated its reported loss before taxes by approximately $100 million (67%) in 2000 and by approximately $3 million (1%) in 2001. In addition, for certain periods, the transactions had the effect of artificially decreasing Converium’s reported loss ratios for certain reporting segments – the ratio between losses paid by an insurer and premiums earned that is frequently cited by analysts as a key performance metric for insurance companies. The Orders find that Converium’s misstatements relate to facts that were material to investors who purchased shares in the IPO. Through the IPO, which was the largest reinsurance IPO in history, Zurich raised significantly more in the Converium IPO than it would have raised had Zurich and Converium not improperly inflated Converium’s financial performance.

The Order against Converium also finds that following the IPO, Converium continued the fraudulent scheme. Converium entered into two additional reinsurance agreements for which risk transfer was negated by undisclosed side agreements. As a result, in its December 31, 2003 Form 20-F, Converium overstated its income before taxes in 2003 by approximately $21.67 million or 11.06%.

Based on the above, Converium has agreed, without admitting or denying the Commission’s findings, to the entry of the Order, which requires Converium to cease and desist from committing or causing any violation and any future violation of Section 17(a) of the Securities Act of 1933 and Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934 and Rules 10b-5, 12b-20, and 13a-1 thereunder. Zurich has also agreed, without admitting or denying the Commission’s findings, to the issuance of an Order that requires Zurich to cease and desist from committing or causing any violation and any future violation of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. (Rel. 33-8988; Rel. 34-59084; AAEA Rel. 2909; File No. 3-13307) (Rel. 34-59083; AAEA Rel. 2908; File No. 3-13306); [SEC v. Zurich Financial Services, Case No. 08 CV 10760 (WHP), SDNY] (LR-20825; AAE Rel. 2910; Press Rel. 2008-292).


SEC Finalizes Auction Rate Securities Settlements With Citigroup and UBS Providing Nearly $30 Billion in Liquidity to Investors

The Commission today finalized settlements with Citigroup Global Markets, Inc. (Citi) and UBS Securities LLC and UBS Financial Services, Inc. (UBS), that will provide nearly $30 billion to tens of thousands of customers who invested in auction rate securities before the market for those securities froze in February.

The settlements resolve the SEC’s charges that both firms misled investors regarding the liquidity risks associated with auction rate securities (ARS) that they underwrote, marketed and sold. Previously, on August 7 and 8, 2008, the Commission’s Division of Enforcement announced preliminary settlements with Citi and UBS, respectively.

According to the SEC’s complaints, filed in federal court in New York City, Citi and UBS misrepresented to customers that ARS were safe, highly liquid investments that were comparable to money markets. According to the complaints, in late 2007 and early 2008, the firms knew that the ARS market was deteriorating, causing the firms to have to purchase additional inventory to prevent failed auctions. At the same time, however, the firms knew that their ability to support auctions by purchasing more ARS had been reduced, as the credit crisis stressed the firms’ balance sheets. The complaints allege that Citi and UBS failed to make their customers aware of these risks. In mid-February 2008, according to the complaints, Citi and UBS decided to stop supporting the ARS market, leaving tens of thousands of Citi and UBS customers holding tens of billions of dollars in illiquid ARS.

The settlements, which are subject to court approval, will restore approximately $7 billion in liquidity to Citi customers who invested in ARS, and $22.7 billion to UBS customers who invested in ARS.

Without admitting or denying the SEC’s allegations, Citi and UBS agreed to be permanently enjoined from violations of the broker-dealer fraud provisions and to comply with a number of undertakings, some of which are set forth below.

The Citi settlement provides, among other things, that:

  • Citi will offer to purchase ARS at par from individuals, charities, and small businesses that purchased those ARS from Citi, even if those customers moved their accounts.
  • Citi will use its best efforts to provide liquidity solutions for institutional and other customers, including, but not limited to, facilitating issuer redemptions, restructurings, and other reasonable means, and will not take advantage of liquidity solutions for its own inventory before making those solutions available to these customers.
  • Citi will pay eligible customers who sold their ARS below par the difference between par and the sale price of the ARS.
  • Citi will reimburse eligible customers for any excess interest costs associated with loans taken out from Citi due to ARS illiquidity.
The UBS settlement provides, among other things, that:
  • UBS will offer to purchase at par from all current or former UBS customers who held their ARS at UBS as of February 13, 2008, or purchased their ARS at UBS between October 1, 2007 and Feb. 12, 2008, even if they moved their accounts. Different categories of customers will receive offers from UBS at different times.
  • UBS will not liquidate its own inventory of a particular ARS without making that liquidity opportunity available, as soon as practicable, to customers.
  • UBS will pay eligible customers who sold their ARS below par the difference between par and the sale price of the ARS.
  • UBS will reimburse customers for any excess interest costs incurred by using UBSís ARS loan programs.

The Commission alerts investors that, in most instances, they will receive correspondence from Citi and UBS, and that they must advise the respective firm that they elect to participate in these settlements, or they could lose their rights to sell their ARS. Further, if eligible customers incurred consequential damages because of the illiquidity of their ARS, they may participate in special FINRA arbitrations.

Both Citi and UBS will also be permanently enjoined from violating the provisions of Section 15(c) of the Exchange Act of 1934, which prohibit the use of manipulative or deceptive devices by broker-dealers. Both firms also face the prospect of financial penalties to the Commission. After the buy back periods are substantially complete, the Commission may consider imposing a financial penalty against Citi and/or UBS based on the traditional factors the Commission considers for penalties and based on whether the individual firm has fulfilled its obligations under its settlement agreement.

The Commission notes the assistance and cooperation from the New York Attorney General, the Financial Industry Regulatory Authority (FINRA), the Texas State Securities Board, and the North American Securities Administrators Association (NASAA).

The Commission’s investigation of the auction rate securities market is continuing.

Securities and Exchange Commission v. Citigroup Global Markets, Inc., Civil Action No. 08 CIV 10753 (RMB) (filed on Dec. 11, 2008); Securities and Exchange Commission v. UBS Securities LLC and UBS Financial Services Inc., Civil Action No. 08 CIV 10754 (filed on Dec. 11, 2008) (LR-20824)


INVESTMENT COMPANY ACT RELEASES

TIAA-CREF Life Funds, et al.

A notice has been issued giving interested persons until Jan. 5, 2009, to request a hearing on an application filed by TIAA-CREF Life Funds (the Trust), the TIAA-CREF Life Insurance Company (TIAA-CREF Life), and Teachers Advisors, Inc. (Advisors) (collectively, Applicants). Applicants seek an order to permit shares of the Trust and shares of any other future investment company (Other Investment Companies) that is designed to fund insurance products and for which TIAA-CREF Life, or any of its affiliates, may serve as administrator, investment manager, principal underwriter or sponsor (the Trust and Other Investment Companies being hereinafter referred to, collectively, as Insurance Investment Companies), or permit shares of any current or future series of any Insurance Investment Company (Insurance Fund), to be sold to and held by: (1) separate accounts funding variable annuity and variable life insurance contracts issued by both affiliated and unaffiliated life insurance companies of TIAA-CREF Life; (2) trustees on behalf of tax-qualified and certain other retirement and employee benefit plans outside of the separate account context; (3) Advisors and any affiliate of Advisors that serves as an investment adviser, manager, principal underwriter, sponsor, or administrator for the purpose of providing seed capital to an Insurance Fund; and (4) any insurance company general account that is permitted to hold shares of an Insurance Fund consistent with the requirements of Treasury Regulation 1.817-5 under the circumstances described in the application. (Rel. IC-28530 - December 10)


SELF-REGULATORY ORGANIZATIONS

Immediate Effectiveness of Proposed Rule Changes

A proposed rule change (SR-CBOE-2008-120) filed by the Chicago Board Options Exchange relating to non-member market-maker transaction fees 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 December 15. (Rel. 34-59068)

A proposed rule change (SR-NASDAQ-2008-092) filed by the NASDAQ Stock Market to trade shares of the MacroShares $100 Oil Up Trust and Macroshares $100 Oil Down Trust pursuant to unlisted trading privileges 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 December 15. (Rel. 34-59070)


Proposed Rule Change

A proposed rule change (SR-FINRA-2008-055) has been filed by the Financial Industry Regulatory Authority regarding a proposal to adopt NASD Rule 2315 (Recommendations to Customers in OTC Equity Securities) as FINRA Rule 2114 in the Consolidated FINRA Rulebook. Publication is expected in the Federal Register during the week of December 15. (Rel. 34-59075)


Approval of Proposed Rule Change

The Commission approved a proposed rule change (SR-FINRA-2008-053) submitted by the Financial Industry Regulatory Authority pursuant to Rule 19b-4 under the Securities Exchange Act of 1934 to amend Section 4(c) of Schedule A of the FINRA by-laws to increase certain qualification examination fees. Publication is expected in the Federal Register during the week of December 15. (Rel. 34-59076)


SECURITIES ACT REGISTRATIONS


RECENT 8K FILINGS

 

http://www.sec.gov/news/digest/2008/dig121108.htm


Modified: 12/11/2008