SEC News Digest

COMMISSION ANNOUNCEMENTS

Commission Meetings

Closed Meeting - Thursday, March 19, 2009 - 2:00 p.m.

The subject matter of the closed meeting scheduled for Thursday, March 19, will be: institution and settlement of injunctive actions; institution and settlement of administrative proceedings of an enforcement nature; 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.

ENFORCEMENT PROCEEDINGS

Commission Revokes Registration of Securities of Carlyle Gaming & Entertainment Ltd. for Failure to Make Required Periodic Filings

On March 13, the Commission revoked the registration of each class of registered securities of Carlyle Gaming & Entertainment Ltd. (CGME) 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, CGME 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 Carlyle Gaming & Entertainment Ltd. 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 CGME's securities pursuant to Section 12(j) of the Exchange Act. This order settled the charges brought against CGME in In the Matter of Carlyle Gaming & Entertainment Ltd., et al., Administrative Proceeding File No. 3-13371.

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 Carlyle Gaming & Entertainment Ltd., et al., Administrative Proceeding File No. 3-13371, Exchange Act Release No. 59398 (Feb. 12, 2009). (Rel. 34-59572; File No. 3-13371)

Commission Revokes Registration of Securities of Guy F. Atkinson Co. of California, Inc. (n/k/a ATKN Company of California) for Failure to Make Required Periodic Filings

On March 13, the Commission revoked the registration of each class of registered securities of Guy F. Atkinson Co. of California, Inc. (n/k/a ATKN Company of California) (ATKQ) 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, ATKQ 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 Guy F. Atkinson Co. of California, Inc. (n/k/a ATKN Company of California) 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 ATKQ's securities pursuant to Section 12(j) of the Exchange Act. This order settled the charges brought against ATKQ in In the Matter of Carlyle Gaming & Entertainment Ltd., et al., Administrative Proceeding File No. 3-13371.

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 Carlyle Gaming & Entertainment Ltd., et al., Administrative Proceeding File No. 3-13371, Exchange Act Release No. 59398 (Feb. 12, 2009). (Rel. 34-59573; File No. 3-13371)

Commission Sets Aside Order of Fees, Expenses and Sanctions Against Richard B. Feinberg

The Commission set aside an order of fees, expenses and sanctions imposed by the Philadelphia Stock Exchange, Inc. against Richard B. Feinberg. The PHLX had ordered Feinberg to pay $464,418.51 incurred by the PHLX in connection with a lawsuit Feinberg filed against a governor on the PHLX Board of Governors. The PHLX also ordered Feinberg's membership to be suspended if he did not pay the fees and expenses. In seeking to recoup these costs, the PHLX relied on PHLX Rule 651, which requires any member who fails to prevail in a lawsuit that is related to the business of the PHLX to reimburse the PHLX for reasonable expenses incurred in connection with that lawsuit. The Commission found that Feinberg's suit was not related to the business of the Exchange as required under Rule 651 and that to permit the PHLX to recoup litigation expenses in cases such as the one Feinberg brought would be inconsistent with purposes of the Securities Exchange Act of 1934. (Rel. 34-59577; File No. 3-13128)

SEC Charges MedQuist Inc. and Former Senior Executives with Securities Fraud

The Securities and Exchange Commission today filed a settled civil injunctive action against MedQuist Inc., a medical transcription company based in New Jersey, charging it with securities fraud and other violations of the federal securities laws. The Commission's complaint alleges that, from 1999 to 2004, MedQuist claimed in SEC filings, press releases and earnings calls that the Company's strong financial performance was due to its disciplined and conservative business practices, while at the same time it was systematically and secretly inflating customer bills to increase revenues and profit margins. Without admitting or denying the allegations, MedQuist agreed to be permanently enjoined from violating the antifraud, reporting, books and records, and internal controls provisions of the federal securities laws. [SEC v.MedQuist Inc., Civil Action No. 09-CV-2297 (S.D.N.Y.)]

The Commission also filed a settled civil action against former MedQuist Director, President, and Chief Operating Officer John A. Donohoe. Without admitting or denying the Commission's allegations, Donohoe agreed to a permanent injunction, a $75,000 civil penalty and a five-year officer and director bar. In its complaint, the Commission alleges that Donohoe, among other things, knew that the Company was increasing its bills to meet revenue and margin targets. The complaint further alleges that Donohoe and others at MedQuist told shareholders and other public investors that the Company's strong financial performance was due to disciplined and conservative business practices, while at the same time it was engaged in overbilling customers. Donohoe agreed to be permanently enjoined from violating Section 17(a) of the Securities Act of 1933 (Securities Act), Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (Exchange Act) and Exchange Act Rules 10b-5, 13b2-1 and 13b2-2 and from 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. [SEC v. John A. Donohoe, Civil Action No. 09-CV-2298 (S.D.N.Y.)]

The Commission's settlements with Donohoe and MedQuist are subject to the approval of the U.S. District Court for the Southern District of New York.

In a separate complaint, the Commission charged former MedQuist Chief Financial Officer Brian J. Kearns and former Controller Bruce J. Van Fossen with participating in the fraudulent scheme. According to the complaint, Kearns and Van Fossen knew that company offices were not calculating bills in accordance with customer contracts, but rather were secretly manipulating the number of transcribed lines charged to customers in order to increase revenues and profit margins. Neither Kearns nor Van Fossen took steps to stop the scheme. Both knew that customers and employees complained of billing fraud, but neither investigated the accuracy of the Company's line counts. The Commission's complaint further alleges that both Kearns and Van Fossen made false statements to auditors designed to conceal the billing complaints and the scheme itself. Both Kearns and Van Fossen prepared, participated in, or signed misleading public filings and statements that attributed the Company's improved financial performance to disciplined and conservative business practices and attributed its revenues to contracted rates and increased sales.

The Commission's complaint charges Kearns and Van Fossen with violations of the antifraud provisions in Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Rule 10b-5 thereunder; with violating the provisions regarding internal controls and false statements to auditors in Section 13(b)(5) of the Exchange Act and Rules 13b2-1 and 13b2-2 thereunder; and with aiding and abetting the Company's violations of the reporting, books and records, and internal control provisions in 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 complaint also charges Van Fossen, in the alternative, with aiding and abetting others' violations of Section 10(b) of the Exchange Act. The Commission seeks injunctions against future violations, officer and director bars, and civil penalties. [SEC v. MedQuist Inc., Civil Action No. 09-CV-2297 (S.D.N.Y.); SEC v. John A. Donohoe, Civil Action No. 09-CV-2298 (S.D.N.Y.); SECC v. Brian J. Kearns and Bruce J. Van Fossen, Civil Action No. 09-CV-2296 (S.D.N.Y.)] (LR-20949A)

SEC Charges Quest Software and Three Executives With Stock Option Backdating

The Securities and Exchange Commission today charged Quest Software, Inc., an Aliso Viejo, California-based software manufacturer, and three current or former officers for stock option backdating.

The SEC's complaint alleges that Quest, its executive chairman Vincent Smith, its former chief financial officer John Laskey, and former controller and principal accounting officer Kevin Brooks, improperly granted undisclosed in-the-money stock options to executives and employees by backdating millions of options from 1999 through 2002. As a result of this misconduct, in September 2007, Quest reported a $113.6 million restatement of its operating income.

According to the SEC's complaint, filed in federal court in Santa Ana, California, Quest failed to accurately describe its stock option practices in its public filings and failed to properly account for the backdated options in its financial statements, resulting in false and misleading disclosures to Quest's shareholders in filings with the SEC from 1999 through 2005.

The complaint further alleges that Quest backdated 28 separate grants involving over 11 million shares of common stock. Quest's failure to properly record compensation expenses in connection with the backdated options resulted in the overstatement of Quest's operating income by 4 percent to 963.1 percent, and the understatement of its operating loss by 26.12 percent to 154 percent from 1999 through 2005.

Specifically, the SEC's complaint alleges that Smith and Laskey approved a policy by which Quest would pool stock option grants each month and backdate the grants to coincide with the lowest stock price of the month. The complaint alleges that the backdated grant dates bore no relation to when the grant was actually approved, resulting in artificially low exercise prices for the stock options. According to the complaint, although he knew about the use of hindsight to date stock option grants, Brooks failed to ensure the accuracy of Quest's financial statements and disclosures. The complaint also alleges that Smith, Laskey, and Brooks took steps to prevent Quest's independent auditors from discovering the backdating, including the use of false written consents by Quest's board of directors.

All defendants have agreed to settle this matter, without admitting or denying the allegations in the SEC's complaint, on the following terms:

Quest consented to an order permanently enjoining it from violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933 (Securities Act) and Sections 13(a), 13(b)(2)(A), 13(b)(2)(B), and 14(a) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 12b-20, 13a-1, 13a-13, and 14a-9 thereunder.

Laskey and Brooks, a certified public accountant, consented to orders permanently enjoining them from violating Sections 17(a)(2) and 17(a)(3) of the Securities Act, and Sections 13(b)(5) and 16(a) of the Exchange Act and Rules 13b2-1, 13b2-2, and 16a-3 thereunder, and from aiding and abetting Quest's violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder. Laskey and Brooks agreed to pay civil penalties of $50,000 and $60,000 respectively. Brooks also agreed to pay disgorgement of $34,775, representing half of the in-the-money value of backdated options he had exercised (the other half had previously been repaid to the company), and prejudgment interest of $5,808.29. In addition, Brooks agreed to a five-year suspension from appearing or practicing as an accountant before the SEC.

Court Enters Preliminary Injunction Against Violations of Anti-Fraud Provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934 and Appoints a Receiver

On March 10, United States District Judge Michael R. Hogan entered a preliminary injunction against Defendants Sunwest Management, Inc. (Sunwest), Canyon Creek Development, Inc. (CCD), Canyon Creek Financial, LLC (CCF), and Jon M. Harder (Preliminary Injunction), in which the Court temporarily restrained and enjoined future violations by Sunwest, CCD, CCF and Harder of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The Court appointed Michael Grassmueck to act as a receiver over Sunwest, CCD, CCF, and several other entities in order to pursue claims against third parties and to protect assets from dissipation. The Court also enjoined creditors and claimants from filing lawsuits, liens or encumbrances or bankruptcy cases against any entity under receivership. [SEC v. Sunwest Management, Inc., et al., United States District Court for the District of Oregon, Civil Action No. CV 09-6056 HO20951] (LR-20951)

SEC v. Automated Trading Desk Specialists, LLC

SEC v. E*Trade Capital Markets LLC

SEC v. Melvin Securities, LLC and Melvin & Company, LLC

SEC v. Sydan, LP

SEC v. TradeLink, LLC

The Securities and Exchange Commission announced today that on March 11, 2009, the Honorable Laura Taylor Swain, United States District Judge for the Southern District of New York, entered Final Consent Judgments in the Commission's previously filed cases against six specialist firms operating on the Chicago Stock Exchange (CHX): Automated Trading Desk Specialists, LLC, E*Trade Capital Markets LLC, Melvin Securities, LLC, Melvin & Company, LLC, Sydan, LP and Tradelink, LLC (collectively, the Defendants). The Court enjoined each of the Defendants from future violations of CHX Rule 17, and Section 17(a)(1) of the Securities Exchange Act of 1934 and Rule 17a-3 thereunder, and ordered the payment of disgorgement and civil penalties totaling in the aggregate more than $42.3 million. The Defendants consented to the entry of the orders without admitting or denying the allegations of the Commission's complaints.

The complaints, filed on March 4, 2009, charge each Defendant with engaging in unlawful proprietary trading on the CHX. In the complaints, the Commission alleges that the Defendants failed to meet their basic obligation as specialists to serve public customer orders over their own proprietary interests while executing trades on the CHX. As specialists operating on the CHX, each of the Defendants had a general duty to match executable public customer or "agency" buy and sell orders and not to fill customer orders through trades from the specialist firm's own accounts when those customer orders could be matched with other customer orders. However, from 1999 through 2005, each Defendant violated this obligation by filling orders through proprietary trades rather than through other customer orders.

The complaints further allege that, during the relevant period, each of the Defendants failed to make or keep current a blotter containing an itemized daily record of all purchases and sales of securities effected by it for its proprietary accounts. For further information, see Litigation Release Number 20922 (March 4, 2009). [SEC v. Automated Trading Desk Specialists, LLC, Civil Action No. 09-1977 (LTS) (SDNY); SEC v. E*Trade Capital Markets LLC, Civil Action No. 09-1976 (LTS)(SDNY); SEC v. Melvin Securities, LLC and Melvin & Company, LLC, Civil Action No. 09-1978 (LTS)(SDNY); SEC v. Sydan, LP, Civil Action No. 09-1975 (LTS)(SDNY) SEC v. TradeLink, LLC, Civil Action No. 09-1973 (LTS)(SDNY)] (LR-20952)

SEC Files Settled Insider Trading Action Against a Former ACR Group, Inc. Employee

On March 13, the Securities and Exchange Commission filed an insider trading action against Michael Biello in Houston federal court. The Commission alleges that Biello, formerly employed by an ACR Group, Inc. affiliate, unlawfully traded in ACR Group's securities when he tipped his brother in advance of the July 5, 2007 public announcement that Watsco, Inc., a New York Stock Exchange issuer, would acquire ACR Group's outstanding common stock in a tender offer.

The Commission's complaint alleges that, in June 2007, while employed by the ACR Group affiliate, Biello learned that Watsco had offered to buy ACR Group. According to the complaint, Biello then advised his brother to purchase ACR Group's stock, telling him, among other things, that ACR Group was a likely merger candidate. His brother promptly purchased 3,300 shares of ACR Group stock. Before market open on July 5, 2007, ACR Group announced Watsco's tender offer, which led to an approximate 44% increase in ACR Group's stock price that day. Biello's brother sold his ACR Group shares on July 5, earning $6,036 profit.

Without admitting or denying the allegations in the complaint, Biello has agreed to settle the Commission's charges by consenting to a permanent injunction against further violations of Sections 10(b) and 14(e) of the Securities Exchange Act of 1934, and Rules 10b-5 and 14e-3 thereunder, and to pay disgorgement of $6,036 plus prejudgment interest of $596.34, and a civil penalty of $6,036. [SEC v. Michael Biello, Civil Action No. 4:09-CV-00752, United States District Court for the Southern District of Texas (Houston Division)] (LR-20953A)

INVESTMENT COMPANY ACT RELEASES

E*Trade Capital Markets LLC, et al.

The Commission has issued a temporary order to E*TRADE Capital Markets LLC, et al. (ETCM) under Section 9(c) of the Investment Company Act with respect to an injunction issued by the U.S. District Court for the Southern District of New York on March 11, 2009. The temporary order exempts applicants and companies of which ETCM is or becomes an affiliated person from the provisions of Section 9(a) of the Act until the Commission takes final action on an application for a permanent order. The Commission also has issued a notice giving interested persons until April 6, 2009, to request a hearing on the application filed by applicants for a permanent order under Section 9(c) of the Act. (Rel. IC-28645 - March 12)

SELF-REGULATORY ORGANIZATIONS

Immediate Effectiveness of Proposed Rule Changes

A proposed rule change filed by The NASDAQ Stock Market to establish new rules applicable to the Nasdaq Market Center and Nasdaq Options Market that explicitly require members to input accurate information into Nasdaq Systems (SR-NASDAQ-2009-014) has become effective pursuant to Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication in the Federal Register is expected during the week of March 16. (Rel. 34-59547)

A proposed rule change filed by TThe NASDAQ Stock Market (SR-NASDAQ-2009-021) regarding a clerical change to Nasdaq rules has become effective under Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication in the Federal Register is expected during the week of March 16. (Rel. 34-59549)

A proposed rule change filed by the New York Stock Exchange (SR-NYSE-2009-24) extending for two months to May 31, 2009 the moratorium related to the qualification and registration of Registered Competitive Market Makers Pursuant to NYSE Rule 107A and Competitive Traders Pursuant to NYSE Rule 110 has become effective under Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication in the Federal Register is expected during the week of March 16. (Rel. 34-59551)

The Commission issued notice of filing and immediate effectiveness of a proposed rule change (SR-NYSEArca-2009-17) filed by NYSE Arca under Rule 19b-4 of the Securities Exchange Act of 1934 amending rule 6.87 - obvious errors. Publication in the Federal Register is expected during the week of March 16. (Rel. 34-59556)

A proposed rule change (SR-NASDAQ-2009-017) filed by The Nasdaq Stock Market to offer a WAIT order modifier for use with orders entered into the NASDAQ Options Market has become effective under Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication in the Federal Register is expected during the week of March 16. (Rel. 34-59557)

The Fixed Income Clearing Corporation filed a proposed rule change (SR-FICC-2009-04) under Section 19(b)(1) of the Exchange Act, which became effective upon filing, to add debt securities that are issued under the Debt Guarantee Program component of the Federal Deposit Insurance Corporation's Temporary Liquidity Guarantee Program to the GCF Repo service. Publication in the Federal Register is expected during the week of March 16. (Rel. 34-59558)

A proposed rule change filed by NYSE Alternext US (SR-NYSEALTR-2009-25) eliminating the ability to enter orders on the Exchange with the settlement instructions of "cash", "next day" and "seller's option" has become effective under Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication in the Federal Register is expected during the week of March 16. (Rel. 34-59561)

A proposed rule change filed by the International Securities Exchange (SR-ISE-2009-12) relating to fee changes has become immediately effective under Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication in the Federal Register is expected during the week of March 16. (Rel. 34-59567)

Approval of Proposed Rule Changes

The Commission approved a proposed rule change (SR-NYSE-2009-03) submitted pursuant to Section 19(b)(1) and Rule 19b-4 under the Securities Exchange Act of 1934 by the New York Stock Exchange to adopt listing fees for securities listed under Section 703.21 and 703.22 and traded on NYSE Bonds. Publication in the Federal Register is expected during the week of March 16. (Rel. 34-59559)

The Commission granted approval of a proposed rule change submitted by NYSE Alternext US (SR-NYSEALTR-2009-02) revising listing fees. Publication in the Federal Register is expected during the week of March 16. (Rel. 34-59560)

JOINT INDUSTRY PLAN RELEASES

Order Approving the Thirteenth Substantive Amendment to the Second Restatement of the Consolidated Tape Association Plan and the Ninth Substantive Amendment to the Restated Consolidated Quotation Plan

The Commission approved amendments to the CTA and CQ Plans (SR-CTA/CQ-2008-05) to provide that the Participants will pay the Network A Administrator a fixed annual fee in exchange for its performance of Network A administrator functions under the Plans. Publication in the Federal Register is expected during the week of March 16. (Rel. 34-59552)

SECURITIES ACT REGISTRATIONS

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RECENT 8K FILINGS

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