Closed Meeting - Thursday, January 29, 2009 - 2:00 p.m.
The subject matter of the closed meeting scheduled for Thursday, January 29, will be: formal orders of investigation; institution and settlement of injunctive actions; institution and settlement of administrative proceedings of an enforcement nature; a litigation matter; a collection matter; adjudicatory matters; and other matters relating to enforcement proceedings.
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 John V. Cracchiolo, CPA
On January 26, the Commission issued an Order Instituting Administrative Proceedings Pursuant to Rule 102(e) of the Commission's Rules of Practice, Making Findings and Imposing Remedial Sanctions (Order) against John V. Cracchiolo, CPA.
The Order finds that on Jan. 13, 2009, the United States District Court for the Central District of California entered an order permanently enjoining Cracchiolo from future violations of Section 17(a) of the Securities Act of 1933, 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 aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder. The Order find that the Commission's complaint in the district court action alleged, among other things, that Cracchiolo engaged in a fraudulent scheme which resulted in Endocare, Inc. filing materially false and misleading periodic reports for the second and third quarters of 2001, the year end 2001, and the first and second quarters in 2002, and registration statements filed on Nov. 14, 2001 and March 26, 2002. The complaint further alleged that as a result of the scheme, Endocare issued misleading press releases and Forms 8-K in December 2002 and March 2003. The complaint alleged that Cracchiolo overstated Endocare's revenue and income by booking false sales, engaging in improper revenue recognition practices, and improperly understating or delaying the recognition of expenses in order to inflate Endocare's earnings.
Based on the above, the Order suspended Cracchiolo from appearing or practicing before the Commission as an accountant. Cracchiolo consented to the issuance of the Order without admitting or denying any of the findings in the Order, except he admitted to the entry of the injunction. (Rel. 34-59295; File No. 3-13349; AAE Rel. 2924)
SEC Settles Civil Fraud Charges Against Two Former Enron In-House Attorneys
The Commission announced today that, on Jan. 20, 2009, the U.S. District Court in Houston entered final judgments in the Commission's civil action against Jordan H. Mintz, a former Enron Vice President and General Counsel of Enron's Global Finance group, and Rex R. Rogers, Enron's former Vice President and Associate General Counsel. On March 28, 2007, the Commission charged Mintz and Rogers with, among other things, participating in a fraudulent scheme not to disclose Enron's related-party transactions with partnerships controlled by its Chief Financial Officer, Andrew Fastow, and compensation Fastow had received through those transactions. As part of the alleged scheme, Rogers further failed to disclose Enron's related-party transactions involving insider stock sales by its Chairman, Kenneth Lay.
The final judgments permanently enjoin Mintz and Rogers from violating Section 17(a) of the Securities Act of 1933 (Securities Act), Sections 10(b) and 14(a) of the Securities Exchange Act of 1934 (Exchange Act), and Rules 10b-5 and 14a-9 thereunder, as well as from aiding and abetting violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder. Mintz is also permanently enjoined from violating Section 13(b)(5) of the Exchange Act and Rules 13b2-1 and 13b2-2 thereunder, as well as from aiding and abetting violations of Section 13(b)(2)(A) of the Exchange Act. In addition, Rogers is permanently enjoined from aiding and abetting violations of Section 16(a) of the Exchange Act and Rules 16a-2 and 16a-3 thereunder.
The final judgments also order Mintz and Rogers each to pay $1 in disgorgement and a $25,000 civil money penalty. These amounts, totaling $50,002, will be deposited into the Court Registry Investment System for distribution to injured Enron investors under the "Fair Fund" provisions of the Sarbanes-Oxley Act of 2002.
On January 26, Mintz and Rogers further consented to the entry of an Administrative Order, pursuant to Rule 102(e)(3)(i) of the Commission's Rules of Practice, suspending each attorney from appearing or practicing before the Commission for a period of two years.
In settlement of this action, Mintz and Rogers neither admitted nor denied the allegations of the Commission's complaint. Among other things, the complaint alleged the following: In 1999, Enron sold an interest in a troubled power project in Cuiaba, Brazil to a related party called LJM1, a partnership controlled by Fastow, to deconsolidate the project and recognize related earnings. Under accounting rules, deconsolidation and earnings recognition were inappropriate because Enron did not transfer the risks and rewards of ownership in light of a secret side agreement promising that LJM1 would not lose money on Cuiaba. Satisfying the side agreement, Mintz helped Enron repurchase Cuiaba from LJM1 in 2001. Mintz then delayed signing and closing of the Cuiaba buyback in an effort to avoid reporting related-party transactions in Enron's 2000 Proxy Statement and 2001 Second Quarter Form 10-Q. Moreover, Mintz and Rogers failed to disclose in Enron's 2000 Proxy Statement millions of dollars Fastow received through related-party transactions between LJM and Enron. Rogers further failed to disclose in Enron's 2000 Proxy Statement at least $16 million in insider stock sales by Chairman Kenneth Lay to repay his Enron line of credit during 2000, and aided and abetted Lay's failure to disclose in SEC Form 4 filings an additional $70 million in insider stock sales by Lay during 2001. (In the Matter of Mintz - Rel. 34-59296, File No. 3-13350, AAE Rel. 2926; In the Matter of Rogers - Rel. 34-59297, File No. 3-13351, AAE Rel. 2927; [SEC v. Jordan H. Mintz and Rex R. Rogers, Civil Action No. H-07-1027 (S.D. Tex.)] (LR-20866; AAE Rel. 2925)
Court Imposes Civil Penalties, Injunctions and Other Relief Against Former CEO and CFO of Hayes Lemmerz International, Inc.
The Commission announced today that the U.S. District Court for the Eastern District of Michigan entered final judgments against Ranko Cucuz, former CEO of Hayes Lemmerz International, Inc., and William D. Shovers, former CFO of Hayes, after a jury found that they had violated the securities laws in connection with an accounting scheme at the company. The judgments were entered on Dec. 18 and 22, 2008, following a remedy hearing before the Honorable Arthur J. Tarnow, United States District Judge.
On Dec. 22, 2008, Judge Tarnow entered final judgment against Shovers that imposed a civil monetary penalty of $50,000, enjoined him from violating the applicable antifraud and other provisions of the federal securities laws, and barred him from acting as an officer or director of a publicly traded company for a period of five years. On Dec. 18, 2008, Judge Tarnow entered final judgment against Cucuz that imposed a $10,000 civil penalty and enjoined him from future violations of the applicable antifraud provision of the Securities Act of 1933.
Previously, on Aug. 20, 2008, a jury found that Shovers violated: (i) the antifraud provisions of both the Securities Act (Section 17(a)(3)) and the Securities Exchange Act of 1934 (Section 10(b) and Rule 10b-5 thereunder); (ii) the internal controls and books and records provisions of the Exchange Act (Section 13(b)(5) and Exchange Act Rule 13b2-1); and (iii) the lying-to-auditor provision of the Exchange Act (Rule 13b2-2). The jury also found that Shovers aided and abetted violations of the issuer reporting, books and records, and internal control provisions of the Exchange Act (Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) and Exchange Act Rules 12b-20, 13a-1 and 13a-13). Finally, the jury found Cucuz liable for violations of the antifraud provisions of the Securities Act (Section 17(a)(3)). The jury found Cucuz not liable on other charges.
Cucuz and Shovers were the last two remaining defendants in this action. On Jan. 14, 2007, the Court entered final judgment by consent against defendant Jesus Bonilla-Valdez (former Vice President of Hayes' Aluminum Wheel Group) that imposed a $30,000 civil penalty, and enjoined him from future violations of the antifraud, reporting, internal controls, and books and records provisions of the federal securities laws. As the Commission previously announced, Hayes and Ronald Kolakowski (former President of Hayes' North American Wheel Group) settled with the Commission at the time the complaint in this action was filed.
Moreover, in previously settled related administrative proceedings, the Commission issued Orders Instituting Administrative Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings and Imposing Remedial Sanctions against Allen Buntin, James Jarrett, and Greg Jones, all of whom were former employees of Hayes.
For more information see Litigation Release Number 20686/Aug. 21, 2008; Litigation Release Number 19668/April 25, 2006; Litigation Release Number 34-53716/April 25, 2006; Litigation Release Number-53716/ April 25, 2006; Litigation Release Number 34-53717/April 25, 2006; Litigation Release Number 34-53718/April 25, 2006. [SEC v. Ranko Cucuz, William D. Shovers, Jesus Bonilla-Valdez, Ronald Lee Kolakowski, and HLI Operating Company, Inc., f/k/a Hayes Lemmerz International, Inc., Civil Action No. 2: 06-CV-11935] (LR-20864; AAE Rel. 2923)
SEC Sues Massachusetts Broker for Fraud and Obtains Emergency Restraining Order and Asset Freeze
On January 23, the Commission filed an emergency civil enforcement action in U.S. District Court in Boston alleging fraud by Gregg Rennie of Quincy, Massachusetts. That same day, the District Court granted the Commission's request for a temporary restraining order, asset freeze, and other relief. The defendant consented to the emergency relief requested by the Commission.
The Commission's filing alleges that, from early 2007 through the present, while acting as an investment adviser, Rennie defrauded numerous clients in Massachusetts and New Hampshire of at least $2 million. According to the Commission's complaint, Rennie told his clients that their money would be invested in risk-free "federal housing certificates" that paid up to 12% per year, tax free, and were offered by a real estate investment company based in Boston. In fact, however, the complaint alleges that the investments were completely fictitious and that Rennie had no relationship with the real estate investment company whose name he used. According to the complaint, Rennie used investor proceeds to pay personal expenses, including a gym membership and liquor, grocery, shoe and department store purchases, and withdrew thousands of dollars in cash from the account where investor funds were sent.
In addition to restraining the defendants from violating 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; and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940, the District Court's order, entered by the Honorable Douglas P. Woodlock, freezes the defendants' assets. The order also prohibits defendant from soliciting, accepting, or depositing any money from investors and requires him to provide an accounting for investor funds.
The Commission brought this action in collaboration with the Massachusetts Securities Division, which today filed an administrative action seeking immediate suspension and subsequent revocation of Rennie's Massachusetts broker-dealer agent registration.
The Commission's complaint charges Rennie with violating Sections 5(a), 5(c), and 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and Sections 206(1) and 206(2) of the Advisers Act. In addition to the emergency relief, the Commission seeks a preliminary injunction, a permanent injunction, disgorgement, and civil penalties.
The Commission acknowledges the assistance provided by the Financial Industry Regulatory Authority in this matter. [SEC v. Gregg Thomas Rennie, 09-CV-1010 -DPW (D. Mass.)] (LR-20865)
INVESTMENT COMPANY ACT RELEASES
Sun Life Assurance Company of Canada, et al.
An order has been issued on an application filed by Sun Life Assurance Company of Canada (U.S.), Sun Life Insurance and Annuity Company of New York, Sun Life of Canada (U.S.) Variable Account F, Sun Life of Canada (U.S.) Variable Account G, Sun Life of Canada (U.S.) Variable Account I, Sun Life (N.Y.) Variable Account C, Sun Life (N.Y.) Variable Account D, and Sun Life (N.Y.) Variable Account J (collectively, the Applicants) and Sun Capital Advisers Trust (together with Applicants, the Section 17(b) Applicants) pursuant to Section 26(c) of the Investment Company Act approving the proposed substitution of Class VC shares of the Lord Abbett Growth and Income Portfolio and the Lord Abbett Mid-Cap Value Portfolio of Lord Abbett Series Fund, Inc., and Administrative Class shares of the PIMCO High Yield Portfolio and the PIMCO Low Duration Portfolio of the PIMCO Variable Insurance Trust with Initial Class shares of the following portfolios of Sun Capital Trust, respectively: the SC Lord Abbett Growth & Income Fund, the SC Goldman Sachs Mid Cap Value Fund, the SC PIMCO High Yield Fund, and the SC Goldman Sachs Short Duration Fund of Sun Capital Trust under certain variable life insurance policies and variable annuity contracts (the Substitutions). The order also exempts Section 17(b) Applicants from the provisions of Section 17(a) of the 1940 Act to the extent necessary to permit certain in-kind transactions in connection with the Substitutions. (Rel. IC-28607 - January 22)
Immediate Effectiveness of Proposed Rule Changes
A proposed rule change (SR-ISE-2009-02) filed by the International Securities Exchange relating to the extension of a pilot program for directed orders has become effective under Section 19(b)(3)(A) under the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of January 26. (Rel. 34-59276)
A proposed rule change filed by the BATS Exchange (SR-BATS-2009-002) to amend BATS Rule 11.8 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 January 26. (Rel. 34-59284)
Accelerated Approval of Proposed Rule Change
The Commission granted accelerated approval to a proposed rule change, as modified by Amendment No. 1, submitted by New York Stock Exchange (SR-NYSE-2008-119) to Establish Trading Rules for the New York Block Exchange. Publication is expected in the Federal Register during the week of January 26. (Rel. 34-59282)
Proposed Rule Changes
The Commission noticed a proposed rule change (SR-FINRA-2008-067) filed by the Financial Industry Regulatory Authority (f/k/a National Association of Securities Dealers to adopt a new, consolidated set of financial responsibility rules. Publication is expected in the Federal Register during the week of January 26. (Rel. 34-59273)
Pursuant to Rule 19b-4 of the Securities Exchange Act of 1934, The NASDAQ Stock Market filed a proposed rule change (SR-NASDAQ-2008-104) to adopt a modified sponsored access rule. Publication is expected in the Federal Register during the week of January 26. (Rel. 34-59275)
Approval of Proposed Rule Change
The Commission granted approval to a proposed rule change (SR-NYSE-2008-120) submitted by the New York Stock Exchange 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 January 26. (Rel. 34-59281)
SECURITIES ACT REGISTRATIONS
RECENT 8K FILINGS