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U.S. Securities and Exchange Commission

SEC News Digest

Issue 2009-19
January 30, 2009

COMMISSION ANNOUNCEMENTS

Commission Meetings

Closed Meeting - Wednesday, February 4, 2009 - 2:00 p.m.

The subject matter of the closed meeting scheduled for Wednesday, Feb. 4, 2009, will be: formal orders of investigation; institution and settlement of injunctive actions; institution and settlement of administrative proceedings of an enforcement nature; resolution of litigation claims; a regulatory matter regarding a financial institution; 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.


RULES AND RELATED MATTERS

SEC Adopts Rules to Require Public Companies to Provide Financial Statements Using Interactive Data

The Commission has adopted rules to improve the usefulness of financial information to investors by requiring domestic and foreign companies to provide to the Commission a new exhibit with their financial statements, including the footnotes and schedules to the financial statements, in interactive data format. Interactive data will supplement, but not replace or change, disclosure using the traditional electronic filing formats in ASCII or HTML. Interactive data will be required with a filer's annual and quarterly reports, transition reports, and Securities Act registration statements, and on its corporate web site, if it maintains one. The requirements will be phased in, beginning later this year with approximately 500 of the largest companies. For further information, contact Mark W. Green, Senior Special Counsel (Regulatory Policy), Division of Corporation Finance at (202) 551-3430; Craig E. Slivka, Special Counsel, Division of Corporation Finance at (202) 551-3430; Jeffrey W. Naumann, Assistant Director, Office of Interactive Disclosure at (202) 551 5352; or Jeffrey Ellis, Professional Accounting Fellow, Office of the Chief Accountant at (202) 551-5300. (Rels. 33-9002; 34-59324; 39-2461; IC-28609; File No. S7-11-08)


ENFORCEMENT PROCEEDINGS

In the Matter of Merrill Lynch, Pierce, Fenner & Smith Inc.

On January 30, the Commission issued an Order Instituting Administrative and Cease-and-Desist Proceedings, Pursuant to Sections 203(e) and 203(k) of the Investment Advisers Act of 1940, Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order as to Merrill Lynch, Pierce, Fenner & Smith Inc. (Order) against Merrill Lynch, Pierce, Fenner & Smith Inc. (Merrill Lynch).

The Order finds that from at least 2002 through 2005, Merrill Lynch, through its pension consulting services advisory program, breached its fiduciary duty to certain of the firm's pension fund clients and prospective clients by failing to disclose the facts creating the material conflict of interest in recommending these clients use directed brokerage to pay hard dollar fees, and in recommending the use of Merrill Lynch's transition management desk to these clients. In addition, the Order finds that Merrill Lynch made misleading statements to the clients served by its Ponte Vedra South, Florida office (Ponte Vedra South office) regarding its manager identification process. The Order finds that as a result of the above conduct, Merrill Lynch willfully violated Section 206(2) of the Investment Advisers Act of 1940 (Advisers Act). The Order finds that, in addition, Merrill Lynch failed reasonably to supervise its investment adviser representatives in the Ponte Vedra South office with respect to the provision of advisory services to its consulting services clients. Finally, Merrill Lynch willfully violated Section 204 of the Advisers Act and Rule 204-2(a)(14) thereunder by failing to maintain records of the offer or delivery of disclosure statements.

Based on the above, the Order orders that Merrill Lynch be censured; cease and desist from committing or causing any violations and any future violations of Sections 204 and 206(2) of the Advisers Act, and Rule 204-2(a)(14) thereunder; and, within 90 days of the entry of this Order, pay a civil money penalty in the amount of $1 million to the United States Treasury. Merrill Lynch consented to the issuance of the Order without admitting or denying any of the findings in the Order. (Rels. IA-2833; 34-59329; File No. 3-13356; IA-2834; File No. 3-13357; 33-9003; 34-59330; 33-9004; IA-2835; File No. 3-13358)


Initial Decision in the Matter of Thomas J. Dudchik and Rodney R. Schoemann

The Commission declared final the initial decision of a law judge finding that Thomas J. Dudchik violated Sections 5(a) and 5(c) of the Securities Act of 1933, in the sale of UCC/Stinger stock that he had acquired from an affiliate of an issuer. The law judge found that Dudchik was a statutory underwriter; and, that the safe harbor of Rule 144(k) was not available to him. Dudchik's sales of the stock constituted an unregistered distribution for which there is no available exemption. (Rel. 33-3001; File No. 3-12943)


Online Gaming Systems Ltd. (n/k/a Advanced Resources Group)

The Commission declared final an initial decision of a law judge finding that Online Gaming Systems, Ltd. (n/k/a) Advanced Resources Group Ltd. (ARG), failed to file timely periodic reports for the periods March 2007 through June 2008. Subsequently, ARG filed three of its six overdue periodic reports between September 2008 and November 2008. However, those filings were deficient. The law judge held that ARG's failure to file timely periodic reports constitute a serious violation of a "central provision of the Exchange Act." The law judge ordered that, pursuant to Section 12(j) of the Securities Exchange Act of 1934, 15 U.S.C. 78l(j), the registration of each class of registered securities of Online Gaming Systems Ltd. (n/k/a Advanced Resources Group Ltd.), be revoked. (Rel. 34-59319; File No. 3-13139)


Commission Sustains Disciplinary Action Against CMG Institutional Trading, LLC, and Shawn D. Baldwin

The Commission sustained NASD disciplinary action against CMG Institutional Trading, LLC, a former NASD member firm, and Shawn D. Baldwin, the firm's president and chief executive officer. The Commission also sustained NASD's imposition of two-year suspensions on CMG and Baldwin for their misconduct and a $25,000 joint-and-several fine.

The Commission found that CMG and Baldwin failed to respond completely and timely to NASD requests for information regarding the adequacy of CMG's net capital. In sustaining NASD's sanctions, the Commission stressed the importance of member firms' and their associated persons' obligation to provide NASD with information pursuant to a request under Rule 8210, noting that NASD relies on such requests "to obtain information from its members necessary to carry out its investigations and fulfill its regulatory mandate." The Commission found that CMG's and Baldwin's "untimely and incomplete responses" to NASD information requests "put investors at risk because NASD was unable to determine timely if CMG had adequate capital to protect investors from the possibility of the firm's failure." According to the Commission, the sanctions imposed will encourage CMG and Baldwin, "as well as encourage others already in the industry, to respond to NASD information requests completely and in a timely manner." (Rel. 34-59325; File No. 3-12994)


Commission Dismisses Appeal of Michael Stegawski

The Commission has dismissed the appeal of FINRA action by Michael Stegawski, a former registered representative whose securities license had lapsed in July 2006. FINRA denied a request by member firm Capstone Partners, L.C., on behalf of Stegawski, for a waiver of the Series 7 Examination and reinstatement of Stegawski's Series 7 license. Based on materials submitted by Capstone, FINRA determined that the request did not warrant a waiver of the examination requirements and recommended that Stegawski retake the examination to requalify as registered representative. In dismissing Stegawski's appeal, the Commission found that the specific grounds on which FINRA based its decision to deny the waiver request existed in fact, that the action was in accordance with FINRA rules, and that FINRA applied its rules in a manner consistent with the purposes of the Exchange Act. (Rel. 34-59326; File No. 3-13001)


Commission Sustains FINRA Disciplinary Action Against Scott Epstein

The Commission has sustained disciplinary action taken by FINRA against Scott Epstein, a former registered representative of Merrill Lynch, a FINRA member firm. FINRA found that Epstein made unsuitable mutual fund switch recommendations to several customers. For these violations, FINRA barred Epstein from acting in any capacity with any member firm.

The Commission found that Epstein did not have reasonable grounds for believing that his recommendations were suitable for those customers based on their financial situation, and that he did not make reasonable efforts to obtain information concerning their financial circumstances before making his recommendations. The Commission also found that Epstein's recommendations subjected the customers to higher expenses, longer investment holding periods, or denied them lower operating expenses to which they would have been entitled. In sustaining the bar, the Commission noted that many of the customers involved were elderly, retired, and/or unsophisticated, and that Epstein "exploited his customers' vulnerabilities" in recommending the trades at issue. (Rel. 34-59328; File No. 3-12933)


SEC Obtains Preliminary Injunctive Relief in Case Involving a Ponzi Scheme and Affinity Fraud Targeting Clergy, Catholics and Senior Citizens

On January 28, the Honorable William M. Skretny, United States District Judge for the Western District of New York, entered an order granting the Securities and Exchange Commission's motion for preliminary injunction and other relief against defendants, Gen-See Capital Corporation a/k/a Gen Unlimited (Gen-See) and its owner and president, Richard S. Piccoli. The court's order continues in place the interim relief initially ordered by the court on Jan. 8, 2009, when the court granted the Commission's application for a temporary restraining order, froze the defendants' assets, and prohibited the defendants from destroying, altering or concealing documents. The court's Jan. 28, 2009 order also: (a) preliminarily enjoins the defendants from selling any securities whatsoever; (b) preliminarily enjoins the defendants from violating the securities laws, including, but not limited to, Sections 5(a) and 5(c) of the Securities Act of 1933 (Securities Act), Section 17(a) of the Securities Act, Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act), and Exchange Act Rule 10b-5; (c) directs the defendants to provide verified accountings; and (d) permits the Commission to seek expedited discovery regarding the defendants' assets.

The defendants filed no opposition to the Commission's motion and consented to the relief.

The Commission's complaint, filed on Jan. 8, 2009, alleges that the defendants raised millions of dollars from investors by promising steady, "guaranteed" returns, ranging from 7.1% to 8.3% per annum, and no fees or commissions, and, in November 2008 alone, the defendants raised over $500,000 from investors. The complaint further alleges that the defendants relied heavily on advertisements in newsletters published by churches and dioceses; the defendants told investors that their money was invested in "high quality" residential mortgages that the defendants were able to purchase at a discount; and that the defendants did not invest the funds as promised, but instead used new investor funds to make payments to earlier investors. In addition, the complaint alleges that Gen-See's offering and sale of securities to the public was not registered with the Commission.

The litigation is pending.

For further information see Litigation Release Nos. 20848 (Jan. 8, 2009) and 20849 (Jan. 9, 2009).[SEC v Gen-See Capital Corp. and Richard S. Piccoli, 09 Civ. 0014 (WMS) (W.D.N.Y.)] (LR-20874)


INVESTMENT COMPANY ACT RELEASES

Franklin Templeton Fund Allocator Series, et al.

An order has been issued on an application filed by Franklin Templeton Fund Allocator Series, et al. under Section 17(d) of the Investment Company Act and Rule 17d-1 under the Act. The order permits certain registered open-end investment companies in the same group of investment companies to enter into a special servicing agreement. (Rel. IC-28608 - January 26)


SELF-REGULATORY ORGANIZATIONS

Immediate Effectiveness of Proposed Rule Changes

A proposed rule change (SR-Phlx-2009-01) filed by NASDAQ OMX PHLX relating to margin requirements for foreign currency options 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 Feb. 2, 2009. (Rel. 34-59283)

A proposed rule change filed by the NYSE Arca introducing a pilot program for NYSE Arca Trades (SR-NYSEArca-2009-06) 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 Feb. 2, 2009. (Rel. 34-59289)

A proposed rule change filed by the New York Stock Exchange introducing a pilot program for NYSE Trades (SR-NYSE-2009-05) 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 Feb. 2, 2009. (Rel. 34-59290)

A proposed rule change (SR-NASDAQ-2009-002) filed by The NASDAQ Stock Market to modify the compliance period applicable to companies that fail to meet the market value of listed securities requirement 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 Feb. 2, 2009. (Rel. 34-59291)

A proposed rule change (SR-NYSEArca-2009-04) filed by NYSE Arca amending rules governing Flexible Exchange Options to increase the maximum term to fifteen years 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 Feb. 2, 2009. (Rel. 34-59305)

A proposed rule change (SR-BX-2009-007) filed by NASDAQ OMX BX extending the effective date of the rule governing Exchange's directed order process on the Boston Options Exchange 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 Feb. 2, 2009. (Rel. 34-59311)

A proposed rule change filed by the BATS Exchange (SR-BATS-2009-005) relating to fee changes 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 Feb. 2, 2009. (Rel. 34-59312)


Accelerated Approval of Proposed Rule Changes

The Commission issued notice of filing of Amendment No. 2 and granted accelerated approval to a proposed rule change (SR-ISE-2006-26), as modified by Amendment Nos. 1 and 2 thereto submitted by the International Securities Exchange pursuant to Rule 19b-4 under the Securities Exchange Act of 1934, relating to professional account holders. Publication is expected in the Federal Register during the week of Feb. 2, 2009. (Rel. 34-59287)

The Depository Trust Company filed a proposed rule change (SR-DTC-2008-15) under Section 19(b)(1) of the Exchange Act that would allow DTC to provide settlement services for stock loan transactions entered into under The Options Clearing Corporation's proposed Market Loan Program. The Commission has approved the proposed rule change on an accelerated basis. Publication is expected in the Federal Register during the week of Feb. 2, 2009. (Rel. 34-59298)


Proposed Rule Changes

NYSE Alternext US filed a proposed rule change (SR-NYSEALTR-2009-02) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 and Rule 19b-4 thereunder to revise its listing fees. Publication is expected in the Federal Register during the week of Feb. 2, 2009. (Rel. 34-59304)

NASDAQ OMX BX filed a proposed rule change under Rule 19b-4 (SR-BX-2009-005) to establish new fees for services available to member and non-members. Publication is expected in the Federal Register during the week of Feb. 2, 2009. (Rel. 34-59307)

The Commission noticed a proposed rule change (SR-NYSEArca-2009-05) submitted by NYSE Arca pursuant to Rule 19b-4 under the Securities Exchange Act of 1934 to establish fees for NYSE Arca Trades. Publication is expected in the Federal Register during the week of Feb. 2, 2009. (Rel. 34-59308)

The Commission noticed a proposed rule change (SR-NYSE-2009-04) submitted by the New York Stock Exchange pursuant to Rule 19b-4 under the Securities Exchange Act of 1934 to establish fees for NYSE Trades. Publication is expected in the Federal Register during the week of Feb. 2, 2009. (Rel. 34-59309)

The NASDAQ Stock Market filed a proposed rule change (SR-NASDAQ-2009-005) as modified by Amendment No. 1 thereto under Section 19(b)(1) of the Securities Exchange Act of 1934 to reduce the order exposure on the NASDAQ Options Market from three seconds to one second. Publication is expected in the Federal Register during the week of Feb. 2, 2009. (Rel. 34-59310)

The New York Stock Exchange filed a proposed rule change (SR-NYSE-2009-03) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 to adopt listing fees for securities listed under Section 703.21 and 703.22 and traded on NYSE Bonds. Publication is expected in the Federal Register during the week of Feb. 2, 2009. (Rel. 34-59313)


SECURITIES ACT REGISTRATIONS


RECENT 8K FILINGS

 

http://www.sec.gov/news/digest/2009/dig013009.htm


Modified: 01/30/2009