Closed Meeting - Tuesday, April 21, 2009 - 2:00 p.m.
The subject matter of the Closed Meeting scheduled for Tuesday, April 21, 2009, will be: formal order of investigation; 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.
In the Matter of American Skandia Investment Services, Inc.
On April 17, 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 (Order) against American Skandia Investment Services, Inc. (ASISI). The Order finds that ASISI engaged in market-timing related misconduct as investment adviser to the American Skandia Trust (AST) portfolios underlying variable annuities issued by American Skandia Life Assurance Corporation (ASLAC). As a result of its misconduct, ASISI will pay disgorgement of $34 million and a civil penalty of $34 million for a total payment of $68 million to a Fair Fund. ASISI is based in Shelton, Connecticut, and is registered with the Commission as an investment adviser.
The Order finds that from at least January 2000 through in or around September 2003, ASISI negligently failed to consider and adequately investigate credible complaints from sub-advisers of certain AST funds that market timing was having a detrimental effect on the performance of the funds. In doing so, ASISI negligently failed to inform the AST Board of Trustees of significant information concerning market timing and its potential effects. As a result, the AST Board of Trustees had insufficient information regarding the potential causes of the sub-advisers' investment results in certain of the AST sub-accounts, and ASISI's implementation of its own market-timing policies and procedures. In addition, the AST Board lacked adequate information to consider whether the sub-accounts had adequate policies and procedures in place with respect to market timing.
Based on the above Order, ASISI shall cease and desist from committing or causing any violations and any future violations of Section 206(2) of the Advisers Act. The Order censures ASISI pursuant to Section 203(e) of the Advisers Act. The Order also requires ASISI to pay disgorgement of ill-gotten gains in the amount of $34 million and civil monetary penalties of $34 million. ASISI has undertaken to undergo a compliance review by a third party by no later than 2009.
In the Matter of Alberto W. Vilar and Gary Alan Tanaka
An Administrative Law Judge issued an Initial Decision in Alberto W. Vilar, Admin. Proc. 3-13345 (April 17, 2009). The Initial Decision finds that on Nov. 19, 2008, following a nine-week jury trial, Vilar was convicted on two counts of securities fraud, two counts of wire fraud, four counts of money laundering, one count of investment adviser fraud, one count of mail fraud, one count of making false statements, and one count of conspiracy to commit securities fraud, investment adviser fraud, wire fraud, mail fraud, and money laundering in United States v. Vilar, No. 1:05-cr-621 (RJS) (S.D.N.Y.). Based on these findings, the Administrative Law Judge found the public interest requires that Vilar be barred from association with any investment adviser, pursuant to Section 203(f) of the Investment Advisers Act of 1940. (Initial Decision No. 375; File No. 3-13345)
In the Matter of Laurence G. Young
An Administrative Law Judge issued an Order Making Findings and Imposing Remedial Sanction by Default (Order) in Laurence G. Young, Admin. Proc. 3-13331 (April 17, 2009). The Order finds Laurence G. Young (Young) in default for failing to answer and defend allegations that the district court in SEC v. McMillin, No. 07-cv-02636-REB-MEH (D. Colo.) enjoined Young from violating Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, Sections 10(b) and 15(a) of the Securities Exchange Act of 1934 (Exchange Act), and Exchange Act Rule 10b-5, ordered him to disgorge $282,102.61 and prejudgment interest of $16,698.13, and ordered him to pay a civil penalty of $282,102.
The Administrative Law Judge found the allegations in the Order Instituting Proceedings to be true, and that the public interest requires that Young be barred from association with any broker or dealer, pursuant to Section 15(b) of the Exchange Act. (Rel. 34-59783; File No. 3-13331)
In the Matter of Kevin E. Brooks, CPA
On April 17, 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 Kevin E. Brooks, CPA, the former controller and principal accounting officer of Quest Software, Inc. (Quest).
The Order finds that Brooks, age 39, is a certified public accountant licensed in the State of California whose license is currently inactive. The Order further finds that on April 1, 2009, a final judgment was entered against Brooks permanently enjoining him from future violations of Section 17(a)(2) and (3) of the Securities Act of 1933 and Sections 13(b)(5) and 16(a) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 13b2-1, 13b2-2, and 16a-3 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, and 13a-13 thereunder, in the civil action entitled SEC v. Quest Software, Inc., et al., Civil Action Number SA CV 09-315 AG (MLGx), in the United States District Court for the Central District of California. In the civil action, Brooks was ordered to pay disgorgement of his ill-gotten gains plus prejudgment interest as well as a civil money penalty of $60,000.
The Order further finds that the complaint filed by the Commission alleges that, in part through the misconduct of Brooks, Quest misstated its financial statements by failing to report compensation expense associated with stock options granted in-the-money through undisclosed backdating of grant dates from 1999 through 2001. The complaint further alleges that Brooks failed to ensure that the stock option grants at Quest were properly accounted for and disclosed. In addition, the complaint alleges that Brooks caused misrepresentations to be made to Quest's auditors by stating in management representation letters that all stock options were made with an exercise price equal to the fair market value of Quest stock on the date of grant.
Based on the above, the Order suspends Brooks from appearing or practicing before the Commission as an accountant, with the right to apply for reinstatement after five years. Brooks consented to the issuance of the Order without admitting or denying any of the findings in the Order, except he admitted the entry of the injunction. (Rel. 34-59785; AAE Rel. 2964; File No. 3-13447)
Court Issues Final Judgment Against Former McKesson Vice President for Insider Trading
The Securities and Exchange Commission announced that on April 10, 2009, Judge Armstrong of the United States District Court for the Northern District of California, Oakland Division, entered a Final Judgment against Defendant William M. Gallahair, a resident of Newport Beach, California, resolving charges of insider trading in the securities of D&K Healthcare Resources, Inc. The Final Judgment, entered with Gallahair's consent and without admitting or denying the allegations in the Commission's complaint, permanently enjoins him from future violations of Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3 thereunder, and orders Gallahair to pay $152,068.45 in disgorgement and prejudgment interest and a civil penalty of $120,170.13.
The Commission's complaint in the matter, filed on Nov. 12, 2008, alleged that Gallahair, a former employee of McKesson Corporation, misappropriated material, non-public information from McKesson about its planned acquisition of D&K through a tender offer and purchased 20,000 shares of D&K stock based on that information approximately two weeks before McKesson publicly announced the tender offer on July 11, 2005. According to the Commission's complaint, Gallahair placed orders to sell all of his shares of D&K stock on the day of McKesson's announcement and realized $120,170.13 in profits from his illegal insider trading.
The Commission acknowledges the assistance and cooperation of the Financial Industry Regulatory Authority with this matter. [SEC v. William M. Gallahair, Civil Action No. 4:08-CV-05134 in the United States District Court for the Northern District of California, Oakland Division] (LR-21005)
Proposed Rule Change
The Financial Industry Regulatory Authority filed a proposed rule change (SR-FINRA-2009-016), as modified by Amendment No. 1, to adopt FINRA Rule 2080 (Obtaining an Order of Expungement of Customer Dispute Information from the Central Depository (CRD System)), FINRA Rule 2310 (Direct Participation Programs), FINRA Rule 4551 (Requirements for Alternative Trading Systems to Record and Transmit Order and Execution Information for Security Futures) and FINRA Rule 2266 (SIPC Information) in the Consolidated FINRA Rulebook pursuant to Rule 19b-4 under the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of April 20. (Rel. 34-59771)
Accelerated Approval of Proposed Rule Change
The Commission granted accelerated approval to a proposed rule change (SR-FINRA-2008-019) as modified by Amendment Nos. 1 and 2 submitted by the Financial Industry Regulatory Authority pursuant to Rule 19b-4 under the Securities Exchange Act of 1934 relating to sales practice standards and supervisory requirements for transactions in deferred variable annuities. Publication is expected in the Federal Register during the week of April 20. (Rel. 34-59772)
Immediate Effectiveness of Proposed Rule Changes
Proposed rule changes filed by NASDAQ OMX BX, The NASDAQ Stock Market, and NASDAQ OMX PHLX (SR-BX-2009-019, SR-NASDAQ-2009-032, SR-Phlx-2009-31) to amend the certificate of incorporation of The NASDAQ OMX Group, Inc. have become immediately 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 April 20. (Rel. 34-59773)
A proposed rule change filed by the International Securities Exchange (SR-ISE-2009-20) relating to fee changes has become immediately 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 April 20. (Rel. 34-59777)
SECURITIES ACT REGISTRATIONS
RECENT 8K FILINGS