Fee Rate Advisory #5 for Fiscal Year 2009
President Barack Obama is expected to sign today H.R. 1105, the appropriations bill that includes funding for the Securities and Exchange Commission. Accordingly, effective March 16, 2009, the Section 6(b) fee rate applicable to the registration of securities, the Section 13(e) fee rate applicable to the repurchase of securities, and the Section 14(g) fee rate applicable to proxy solicitations and statements in corporate control transactions will increase to $55.80 per million dollars. The Section 6(b) rate is also the rate used to calculate the fees payable with the Annual Notice of Securities Sold Pursuant to Rule 24f-2 under the Investment Company Act of 1940.
All filings submitted to the SEC before 5:30 p.m., ET, and filings pursuant to Rule 462(b) (17 C.F.R. 230.462(b)) submitted to the SEC before 10:00 p.m., ET, on March 13, 2009, will be subject to the current fee rate of $39.30 per million dollars. Rule 462(b) filings submitted after 10:00 p.m., ET, and all other filings submitted after 5:30 p.m., ET, on March 13, 2009, shall be deemed filed as of the next business day, March 16, 2009, under Section 232.13 of Regulation S-T (17 C.F.R. 232.13), and be subject to the new fee rate of $55.80 per million dollars.
Filers with questions about the new Section 6(b), Section 13(e), or Section 14(g) fee rates should call the SEC at (202) 551-8900.
In addition, effective April 10, 2009, the Section 31 fee rate applicable to securities transactions on the exchanges and over-the-counter markets will increase to $25.70 per million dollars. Until that date, the current rate of $5.60 per million dollars will remain in effect. The Section 31 assessment on security futures transactions will remain unchanged at $0.0042 per round turn transaction.
The Office of Interpretation and Guidance in the Commission's Division of Trading and Markets is available for questions on Section 31 at (202) 551-5777, or by e-mail at firstname.lastname@example.org.
Under the Investor and Capital Markets Fee Relief Act, the Commission is required to adjust the filing and securities transaction fee rates on an annual basis to levels the SEC estimates will generate collections equal to numeric targets set in the statute. A copy of the Commission's May 2, 2008, order regarding fee rates under Section 6(b) of the Securities Act of 1933 and Sections 13(e), 14(g), and 31 of the Securities Exchange Act of 1934 for fiscal year 2009 is available at http://www.sec.gov/rules/other/2008/33-8916.pdf. Also, the Commission is required to determine each year whether a mid-year adjustment to securities transaction fee rates is necessary. A copy of the Commission's February 27, 2009 order regarding the mid-year fee adjustment under Section 31 of the Securities Exchange Act of 1934 for fiscal year 2009 is available at http://www.sec.gov/rules/other/2009/34-59477.pdf.
The adjusted fee rates will not affect the amount of funding available to the Commission.
The Commission will announce the new fee rates for fiscal year 2010 no later than April 30, 2009. These fee rates will become effective Oct. 1, 2009, or after the Commission's fiscal year 2010 appropriation is enacted, whichever is later. (Press Rel. 2009-56)
In the Matter of Joseph C. Lavin
An Administrative Law Judge has issued an Initial Decision in Joseph C. Lavin. The Initial Decision finds that Joseph C. Lavin pled guilty to one count of wire fraud in violation of 18 U.S.C. SS 1342-43 and one count of money laundering in violation of 18 U.S.C. S 1356 in the United States District Court for the Western District of Washington (district court). The district court entered a judgment, sentencing Lavin to a prison term of fifty-four months, followed by three years of supervised release, and ordering him to make restitution in the amount of $11,612,538.55. The Initial Decision concludes that, pursuant to Section 203(f) of the Investment Advisers Act of 1940, it is in the public interest to bar Joseph C. Lavin from association with any investment adviser. (Initial Decision No. 373; File No. 3-13222)
In the Matter of Leading Edge Packaging, Inc.
An Administrative Law Judge has issued an Order Making Findings and Revoking Registrations by Default as to Three Respondents (Default Order) in Leading Edge Packaging, Inc., Administrative Proceeding No. 3-13354. The Order Instituting Proceedings (OIP) alleged that four Respondents failed repeatedly to file required annual and quarterly reports while their securities were registered with the Securities and Exchange Commission (Commission). The Default Order finds these allegations to be true and revokes the registrations of each class of registered securities of Leading Edge Packaging, Inc., Leadingside, Inc., and Lecstar Corp. pursuant to Section 12(j) of the Securities Exchange Act of 1934.
The Commission has previously accepted an offer of settlement from Legal Club of America, Inc., the fourth Respondent named in the OIP. (Rel. 34-59564; File No. 3-13354)
In the Matter of Raymond Thomas
On March 12, the Commission issued an Order Instituting Administrative Proceedings Pursuant to Section 203(f) of the Investment Advisers Act of 1940 and Notice of Hearing (Order) against Raymond Thomas (Thomas) based upon the entry of a Permanent Injunction entered against him in the United States District Court for the Northern District of Ohio (Securities and Exchange Commission v. Raymond Thomas and Strictly Stocks Investment Company, Inc., Civil Case No. 1:08-cv-02503).
In the Order, the Division of Enforcement alleges that on Feb. 23, 2009, the United States District Court for the Northern District of Ohio granted the Commission's Motion for Final Judgment Order of Permanent Injunction and Other Relief by Default and entered a final judgment order, which, inter alia, permanently enjoined Thomas from violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, Rule 10b-5 promulgated thereunder, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940.
A hearing will be scheduled before an Administrative Law Judge to determine whether the allegations contained in the Order are true, and to provide the Respondent an opportunity to dispute these allegations, and to determine what, if any, remedial sanctions are appropriate and in the public interest.
The Order requires the Administrative Law Judge to issue an initial decision no later than 210 days from the date of service of this Order, pursuant to Rule 360(a)(2) of the Commission's Rules of Practice. (Rel. 34-59565; File No. 3-13408)
In the Matter of Matthew E. Kopsky
On March 12, the Commission issued an Order Instituting Administrative Proceedings Pursuant to Section 15(b) of the Securities Exchange Act of 1934 and Section 203(f) of the Investment Advisers Act of 1940, Making Findings, and Imposing Remedial Sanctions (Order) against Matthew E. Kopsky. The Order finds that on Feb. 24, 2009, a final judgment was entered by consent against Kopsky, permanently enjoining him from future violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, in the civil action entitled SEC v. Matthew E. Kopsky, et al, Civil Action Number 4:07-cv-379-RWS, in the United States District Court for the Eastern District of Missouri. In that action, the Commission's complaint alleged that Kopsky engaged in insider trading the securities of Engineered Support Systems, Inc. (ESSI). The complaint alleged that Ronald Davis, ESSI's former President of Business Development, tipped Kopsky before each of ESSI's first three quarterly earnings announcements in 2003, and that Kopsky purchased ESSI securities for himself and his clients based on material, nonpublic information received from Davis. According to the complaint, Kopsky made a total profit of $276,259 on these trades, including $107,062 personally, and $169,197 for his clients.
Based on the above, the Order suspends Kopsky from association with any broker, dealer, or investment adviser for a period of twelve months. Kopsky consented to the issuance of the Order without admitting or denying any of the findings in the Order. (Rels. 34-59568; IA-2852; File No. 3-13409)
Attorney Pleads Guilty to Conspiracy to Violate Securities Laws
The Department of Justice announced today that it filed criminal charges against Arizona securities lawyer David B. Stocker in the United States District Court for the Eastern District of Virginia. The Department of Justice charged Stocker with one count of conspiracy to commit securities fraud involving 19 publicly-traded companies. According to the Department of Justice's announcement, Stocker participated in a "pump-and-dump" scheme to issue shares to the public illegally and to manipulate the trading price and volume by making materially false and misleading statements in press releases and in spam e-mail messages. Stocker simultaneously entered a guilty plea, agreeing to pay restitution to investors and forfeit the proceeds of his crimes. Stocker is currently scheduled to be sentenced on November 6, 2009.
The Securities and Exchange Commission earlier named Stocker in three civil injunctive actions currently pending in federal district courts in Arizona, Michigan, and Texas. In the actions, described below, the Commission alleged that Stocker violated the antifraud and registration provisions of the securities laws:
The Commission seeks to enjoin Stocker from future violations of the securities laws, disgorgement of Stocker's ill-gotten gains with pre-judgment interest, civil penalties, and to bar Stocker from participating in future offerings of penny stock. [SEC v. Peter W. Fisher, et al., Civil Action No. 07-cv-12552 GER PJK (E.D. Mich.); SEC v. Phillip W. Offill, Jr., et al., Civil Action No. 07-cv-1643-D (N.D. Tex.); SEC v. David B. Stocker, et al., Civil Action No. CIV-08-1475-PHX-FJM (D. Ariz.)] (LR-20944)
Settlements Offered in PowerCold Accounting Fraud Action
The Securities and Exchange Commission filed a civil injunctive action Wednesday, March 11 against PowerCold Corporation, of San Antonio, Texas, and Francis L. Simola, its chairman and CEO, Joseph C. Cahill, its former CFO, and Grayling R. Hofer, its chief operating officer and formerly its controller. The Commission's complaint alleges that PowerCold materially overstated its financial results from 2003 through the third quarter of 2005 by recognizing revenue from fictitious contracts, and inflating and prematurely recognizing revenue from actual contracts. The complaint also alleges that Simola, Cahill and Hofer participated in the scheme, including by making materially false or misleading statements to PowerCold's auditor.
The defendants have offered to settle the action by consenting, on a neither admit-nor-deny basis, to permanent injunctions against violating, or aiding and abetting violations, of the anti-fraud, books and records and reporting provisions of the federal securities laws. The individuals are also consenting to court orders barring them from serving as officers or directors of an SEC reporting company for five years, and Simola is consenting to a $75,000 civil money penalty. PowerCold also agreed to an administrative revocation of the Exchange Act registration of its securities, ending its status as a SEC reporting company, and Hofer agreed to an administrative order barring him from practicing before the Commission as an accountant. [SEC v. PowerCold Corporation, et al, Civil Action No. SA-09-CV-185-FB, U.S.D.C./Western District of Texas (San Antonio Division)] (LR-20945; AAE Rel. 2948)
SEC Halts Fraudulent Ponzi-like Scheme
On March 11, the Securities and Exchange Commission obtained an order temporarily restraining Brian J. Smart and a private entity controlled by him, Smart Assets, LLC, from continuing to engage in the fraudulent offer and sale of securities. The Honorable Bruce S. Jenkins of the United States District Court for the District of Utah also froze the defendants' assets, ordered that discovery be accelerated and that defendants be prohibited from destroying documents, ordered the defendants to promptly provide sworn accountings of investor funds and other assets, and ordered that a preliminary injunction hearing be held on March 20, 2009, to determine if the interim relief should be continued.
The Commission's Complaint, filed on March 11, alleges that Smart, a resident of Lehi, Utah, and Smart Assets engaged in a Ponzi-like scheme in the offer and sale of promissory notes and other securities over a period extending back at least six years. According to the Complaint, the defendants fraudulently raised approximately $1.68 million from investors, including senior citizens. The Complaint further alleges that Smart went to great lengths to convince investors that he was a sophisticated financial planner, when in fact he was misappropriating funds for his own personal use and investing the remaining funds entrusted to him in illiquid and ill-fated real estate ventures. According to the Complaint, Smart falsely represented to investors that he was providing a conservative, sound investment opportunity for them to receive regular, monthly income. The Complaint also alleges that Smart solicited additional investors by providing these new investors with promissory notes and "membership certificates" in Smart Assets, claiming an interest payable on the notes ranging from 8.5% to 18% interest per annum. The Complaint further alleges that the defendants offered promissory notes to other investors falsely representing that they were using the invested money to lend out at higher rates. The actual uses to which the money was put were allegedly not disclosed to investors. According to the Complaint, Smart, through Smart Assets, operated a Ponzi-like scheme by using proceeds obtained from new investors to make payments to early investors. Smart is further alleged to have misappropriated approximately $1.68 million of investor money for personal use, including purchasing a home and paying for his living expenses.
The Complaint alleges that Smart and Smart Assets violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. In addition to emergency and preliminary relief, the Commission's Complaint is seeking permanent injunctions, disgorgement and civil penalties. [SEC v. Brian J. Smart, et al., Civil Action No. 2:09-cv-00224-DAK (D. Utah)] (LR-20946)
Former Executive of Massachusetts Public Company Pleads Guilty for Lying and Obstructing Justice in an SEC Action
The Commission announced today that on March 11, Howard Richman, the former head of regulatory affairs of Biopure Corporation, plead guilty to, among other things, lying and obstructing justice in an SEC action against him.
According to the Sept. 24, 2008 Indictment, from Oct. 26, 2006 through July 17, 2007, Richman represented to a federal judge that he was terminally ill with colon cancer and could not participate in an ongoing civil case that was brought against him by the Securities and Exchange Commission. The Indictment alleged that in reality, Richman did not have cancer. Rather, according to the Indictment, he falsely claimed to be terminally ill in order to avoid discovery and a scheduled trial in the SEC's case against him and to obtain a favorable settlement. The Indictment alleged that, to perpetuate his lie, Richman provided the Court with false affidavits and fabricated letters from a physician.
Previously, in September 2005, the Commission filed an enforcement action against Biopure, Richman and three other executives alleging that beginning in April 2003, Biopure received negative information from the FDA regarding its efforts to obtain FDA approval of its synthetic blood product Hemopure but failed to disclose the information, or falsely described it as positive developments in its filings with the Commission.
After Richman's lie was revealed, the Commission reached a settlement of its case with him and the Court entered a final judgment by consent against Richman on Aug. 6, 2008 permanently enjoining Richman from violating the antifraud and other provisions of the federal securities laws, permanently barring Richman from serving as an officer or director of any public company and ordering him to pay a $150,000 civil penalty. As a result of his plea, Richman now faces up to ten (10) years imprisonment, followed by three (3) years of supervised release, and a $250,000 fine.
For further information, see Litigation Release No. 20744 (Sept. 25, 2008), Litigation Release No. 20672 (Aug. 7, 2008)( SEC Settles Civil Injunctive Action with Former Executive of Massachusetts Public Company), Litigation Release No. 20010 (Feb. 21, 2007)(SEC Settles Civil Injunctive Action Against Former CEO of Biopure Corporation), Litigation Release No.19825 (Sept. 12, 2006) (SEC Settles Civil Injunctive Action Against Biopure Corporation and Its General Counsel), Litigation Release No. 19651 (April 11, 2006) (SEC Settles with Former Biopure Executive) and Litigation Release No. 19376 (Sept. 14, 2005) (Biopure and Others Charged by the Commission). [U.S. v. Howard P. Richman, Criminal Action. No. 08-10282-MLW (D. Mass.)] (LR-20947)
Commission Charges Hedge Fund Employees and Brokers with Bribery Scheme
On March 12, the Commission filed a complaint in the United States District Court for the Southern District of New York alleging that two brokers, David Harrison Baker (Baker) and Daniel Schreiber (Schreiber), and the broker-dealer with which Schreiber was associated, Granite Financial Group, LLC (Granite), paid bribes to Brian Travis (Travis) and Nicholas Peter Vulpis, Jr. (Vulpis), two employees of a hedge fund investment adviser in exchange for Travis and Vulpis routing hedge fund trades, and the associated commissions, to Baker, Schreiber and Granite.
According to the Complaint, from March 2003 to October 2005, two employees of the investment adviser JLF Asset Management LLC (JLF), Travis and Vulpis, solicited and accepted bribes from brokers. The bribes took the form of payments for expensive travel and various personal services. In exchange for those bribes, Travis and Vulpis directed trades to those brokers. Their conduct defrauded JLF's hedge fund clients, whose trades - unbeknownst to the clients - were being steered to brokers for the purpose of enriching the defendants. The brokers offering these bribes included Baker and Schreiber.
The Complaint also alleges that among the benefits Travis and Vulpis extracted from these brokers were international air travel (including for family members), hotel arrangements, the cost of building a special crate to transport Travis' Great Dane, fully-paid vacations, daily car service, computer equipment, and monthly rent payments for a personal residence. Collectively, Travis and Vulpis received at least $312,000 in such personal benefits. Baker, Schreiber, and Granite benefited handsomely from this scheme as well: in exchange for bribes, Travis and Vulpis directed a substantial amount of trades to each of them, which, in turn, meant that each received substantial commissions. Indeed, during the relevant period, Baker, Schreiber and Granite received a total of approximately $10,702,105 in commissions from trades that Travis and Vulpis directed to them.
The Complaint further alleges that Travis and Vulpis concealed their bribery scheme, and the material conflicts of interest it created, from JLF's hedge fund clients. For example, Travis and Vulpis used a "net" commission structure with Baker, Schreiber, Granite and others, to obscure the amount of trades they were directing and commissions they were paying to, among others, Baker, Schreiber, and Granite. As a result, JLF did not disclose to its funds its material conflicts of interest which were the direct result of Travis' and Vulpis' corrupt dealings with the other defendants.
The Commission's complaint charges Travis, Vulpis, Baker, Schreiber and Granite with violations of Section 17(a) of the Securities Act of 1933, 15 U.S.C. SS 77q(a), Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. S 77j(b), and Rule 10b-5 thereunder, 17 C.F.R. S 240.10b-5, and with aiding and abetting JLF's violations of Sections 206(1) and 206(2) of the Investment Advisers Act of 1940, 15 U.S.C. SS 80b-6(1) and 80b-6(2). The Commission's complaint seeks injunctive relief, disgorgement plus prejudgment interest, and civil penalties. [SEC v. Brian Travis, et al., Civil Action 09 CV 2288 (PKC) (SDNY) (LR-20948)
INVESTMENT COMPANY ACT RELEASES
Eaton Vance Enhanced Equity Income Fund, et al.
An order has been issued on an application filed by Eaton Vance Enhanced Equity Income Fund, 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 outstanding common shares as frequently as twelve times each year, and (ii) as frequently as distributions are specified by or in accordance with the terms of any preferred shares that such investment companies may issue. (Rel. IC-28643 - March 10)
Approval of Proposed Rule Changes
The Commission approved a proposed rule change (SR-NYSEArca-2009-01) submitted under Rule 19b-4 of the Securities Exchange Act of 1934 by NYSE Arca relating to the reduction of the annual fee for certain issues listed under Rule 5.2(j)(6). Publication is expected in the Federal Register during the week of March 16. (Rel. 34-59518)
The Commission approved a proposed rule change (SR-NYSE-2008-131) submitted under Rule 19b-4 of the Securities Exchange Act of 1934 by the New York Stock Exchange to introduce a NYSE OpenBook nonprofessional subscriber fee and to revise the unit of count that determines the device fees payable by data recipients. Publication is expected in the Federal Register during the week of March 16. (Rel. 34-59544)
Immediate Effectiveness of Proposed Rule Changes
A proposed rule change filed by NASDAQ OMX PHLX (SR-Phlx-2009-19) to amend the Exchange's fee schedule relating to the Market Access Provider subsidy 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 March 16. (Rel. 34-59537)
A proposed rule change filed by the Chicago Board Options Exchange (SR-CBOE-2009-015) relating to two pilot programs 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 March 16. (Rel. 34-59539)
A proposed rule change filed by the NASDAQ OMX PHLX (SR-Phlx-2009-20) relating to the elimination of sector index options from the monthly firm cap 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 March 16. (Rel. 34-59545)
A proposed rule change filed by the Chicago Board Options Exchange (SR-CBOE-2009-016) to modify the hybrid rule pertaining to orders represented in open outcry has become immediately 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 March 16. (Rel. 34-59546)
A proposed rule change filed by the International Securities Exchange to amend the exchange's obvious error rules (SR-ISE-2009-10) 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 March 16. (Rel. 34-59548)
A proposed rule change filed by the International Securities Exchange to enable the listing and trading of options on managed fund shares (SR-ISE-2009-11) 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 March 16. (Rel. 34-59553)
Proposed Rule Changes
NASDAQ OMX PHLX filed a proposed rule change (SR-Phlx-2009-17) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 relating to the nomination and election of candidates for Governor and Independent Governor. Publication is expected in the Federal Register during the week of March 16. (Rel. 34-59538)
The Depository Trust Company filed a proposed rule change (SR-DTC-2009-05) under Section 19(b)(2) of the Securities Exchange Act of 1934. The proposed rule change would to expand the scope and timing that DTC can collect and pass-through fees owed by participants to American Depositary Receipt agents. Publication is expected in the Federal Register during the week of March 16. (Rel. 34-59540)
The Commission issued notice of a proposed rule change submitted by NYSE Arca (SR-NYSEArca-2009-14) pursuant to Rule 19b-4 under the Securities Exchange Act of 1934 relating to the leverage factor applicable to the MacroShares Major Metro Housing Trusts. Publication is expected in the Federal Register during the week of March 16. (Rel. 34-59542)
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