Closed Meeting on Thursday, May 14, 2009 at 2:00 p.m.
The subject matter of the Closed Meeting scheduled for Thursday, May 14, 2009, will be: institution and settlement of injunctive actions; institution and settlement of administrative proceedings of an enforcement nature; consideration of amicus participation; adjudicatory matters; resolution of litigation claims; and other matters related 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.
Michael Lauer to Pay More than $62 Million in Hedge Fund Fraud Case
The Securities and Exchange Commission announced today that Michael Lauer, the head of two Connecticut-based hedge fund advisors, has been ordered to pay more than $62 million within 15 days as a result of being found liable on SEC fraud charges last fall.
U.S. District Judge Kenneth Marra for the Southern District of Florida found that Lauer, head of Lancer Management Group and Lancer Management Group II, must pay more than $43.6 million to deprive him of his ill-gotten gains, and more than $18.9 million in prejudgment interest.
"This is a victory for investors and a cautionary tale for hedge fund managers who line their pockets with ill-gotten gains," said David Nelson, Director of the SEC's Miami Regional Office. "We are pleased the court agreed that the fraudulent conduct warranted this judgment."
According to the SEC's complaint in the case, Lauer raised more than $1.1 billion from investors over several years by misrepresenting the nature of and returns on his investments, and caused investors to lose approximately $500 million of that amount.
The judge's order also gives the SEC 30 days to recommend a specific penalty amount that Lauer should pay in addition to disgorgement of his ill-gotten gains. Lauer has been criminally indicted in the Southern District of Florida for the same conduct underlying the SEC's action. His trial is currently scheduled for March 2010.
For more information, contact:
Christopher E. Martin
(Press Rel. 2009-106)
In the Matter of INTECH Investment Management LLC and David E. Hurley
On May 7, the Commission issued an Order Instituting Administrative Proceedings Pursuant to Sections 203(e), 203(f) and 203(k) of the Investment Advisers Act of 1940, Making Findings and Imposing Remedial Sanctions and a Cease-and-Desist Order (Order) as to INTECH Investment Management LLC and David E. Hurley. The Order finds that from at least 2003 through 2006, INTECH Investment Management LLC (INTECH), a Florida-based registered investment adviser, exercised voting authority over client securities without having written policies and procedures that were reasonably designed to ensure INTECH voted the securities in the best interests of its clients. In particular, INTECH's policies and procedures did not include how INTECH would address material potential conflicts of interests that might have arisen between its interests and those of its clients. INTECH also did not sufficiently describe its proxy voting policies and procedures to clients.
The Order finds that INTECH managed institutional portfolios for pension plans, foundations, unions, public funds and public corporations. As part of its investment advisory services, INTECH exercised voting authority over many of its clients' securities or proxies. In connection with the then-newly effective Investment Advisers Act Proxy Voting Rule, INTECH adopted and implemented written proxy voting policies and procedures and provided them to its clients. David E. Hurley (Hurley), INTECH's former Chief Operating Officer and an Executive Vice President, reviewed and edited counsel's drafts of those policies and procedures.
The Order further finds that in 2003, after receiving complaints from some of its union-affiliated clients about pro-management proxy votes, INTECH selected a third-party proxy voting service provider's guidelines that followed AFL-CIO proxy voting recommendations to vote all of its clients' securities regardless of whether the clients were union-affiliated or otherwise pro-AFL-CIO. INTECH selected the guidelines that followed the AFL-CIO proxy voting recommendations at a time when it was participating in the annual AFL-CIO Key Votes Survey that ranked investment advisers based on their adherence to the AFL-CIO recommendations on certain votes. INTECH believed that following the AFL-CIO recommendations would improve its ranking in the Key Votes Survey and that the improved score would likely be helpful in maintaining existing and attracting new union-affiliated clients.
The Order also finds that when INTECH advised its clients about its proxy voting policies and procedures, it told clients that because it relied on a third-party proxy voting service, it did not expect that any conflicts would arise in the proxy voting process. Moreover, INTECH described its proxy voting policies and procedures without including any references to the fact that the guidelines it had chosen to use followed AFL-CIO proxy voting recommendations.
In connection with the release of the Proxy Voting Rule, the Commission stated that advisers may use a "predetermined voting policy," such as a third-party proxy voting service's platform, to vote proxies provided that the predetermined policy is "designed to further the interests of clients rather than the adviser."
Based on the above, the Order: finds that INTECH willfully violated, and Hurley willfully aided and abetted and caused violations of, Section 206(4) of the Investment Advisers Act of 1940 and Rules 206(4)-6(a) and 206(4)-6(c) thereunder (Proxy Voting Rule); censures INTECH and Hurley; and requires INTECH and Hurley to cease and desist from committing or causing any violations and any future violations of those provisions. The Order also requires INTECH to pay a civil penalty of $300,000 and Hurley to pay a civil penalty of $50,000. INTECH and Hurley consented to the issuance of the Order without admitting or denying any of the findings in the Order. (Rel. IA-2872; File No. 3-13463)
SEC Obtains Preliminary Injunction and a Permanent Receiver in an Unregistered Broker-Dealer Scheme
The Commission today announced that it obtained a preliminary injunction against an unregistered broker-dealer, Finbar Securities Corp., a suspended California corporation based in West Covina, California, and its president Robert Tringham, 63, of Diamond Bar, California and Portland, Oregon. The Honorable Otis D. Wright II, United States District Judge for the Central District of California, also granted additional relief that the Commission sought including orders freezing assets, appointing Robb Evans & Associates LLC as permanent receiver over Finbar, and requiring the defendants to repatriate assets from abroad.
The Commission's complaint, filed on April 3 in federal court in Los Angeles, alleges that Tringham and Finbar fraudulently raised at least $6.4 million from investors in the U.S. and abroad, and falsely represented that Finbar was "a licensed Securities Dealer." The complaint alleges that Finbar provided false account statements to an investor as recently as March 13 that displayed the National Association of Securities Dealers' logo, despite the fact that the use of the NASD name ceased in July 2007, and cited to non-existent CUSIP numbers purportedly representing the investor's securities holdings. The complaint alleges that Finbar has not been registered with the Commission and that Tringham has not been associated with any registered broker or dealer. According to the complaint, Tringham has operated Finbar since at least 2006 and, as part of his scheme, he appropriated the identity of a now defunct Oregon corporation, also called Finbar, that was registered with the Commission as a broker-dealer from 1987 to 2006, and which Tringham had unsuccessfully attempted to purchase. The complaint alleges Tringham told investors Finbar sold debt instruments and high yield risk-free investment opportunities.
On April 3, the Commission obtained an order freezing the assets of Finbar and Tringham, temporarily enjoining Finbar and Tringham from violating Section 17(a) of the Securities Act, Sections 10(b) and 15(a) of the Exchange Act and Rule 10b-5 thereunder, and Sections 206(1) and (2) of the Advisers Act, and other emergency relief. The Commission also seeks permanent injunctions, disgorgement, and civil penalties against Tringham and Finbar.
For further information, see Litigation Release No. 20991 (April 7, 2009). [SEC v. Finbar Securities Corp, et al., Case No. CV 09-2325 ODW USDC, (C.D. Cal.)] (LR-21027)
Edward James Wexler Permanently Enjoined in Market Manipulation and Financial Fraud Case
The Commission announced today that, on May 7, 2009, the federal district court in Nevada entered a final judgment, by consent, against Edward James Wexler, of Scottsdale, Arizona, in connection with an enforcement action filed in 2005 concerning a stock manipulation and accounting fraud scheme. The judgment permanently enjoins Wexler from violating the antifraud provisions of the federal securities laws and orders him to pay disgorgement and prejudgment interest totaling $249,095.61, but waives payment of all but $20,000 of that amount and does not impose a civil monetary penalty based on his financial condition. The judgment also bars Wexler from participating in any offering of a penny stock.
The Commission's action in this case was filed on April 21, 2005 against Exotics.com, Inc., a Nevada corporation based in Vancouver, British Columbia, and 12 other principal defendants and one relief defendant. The complaint alleged that, between at least 1999 and 2002, Exotics.com, which was then an Over-the-Counter Bulletin Board company in the business of operating adult Web sites, was the subject of a manipulation and accounting fraud perpetrated by, among others, its officers, attorneys and outside auditors. The complaint alleged that Wexler, a former registered representative of a broker-dealer, played a role in the scheme by engaging in manipulative trading of Exotics.com stock.
Without admitting or denying the allegations in the Commission's complaint, Wexler consented to the entry of the final judgment against him. The final judgment enjoins Wexler from violating Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder and bars him from participating in any penny stock offering. The judgment also orders that Wexler is liable for disgorgement of $156,870.92, representing the ill-gotten gains from his manipulative trading, plus prejudgment interest of $92,224.69, but waives payment of all but $20,000 of that amount and does not impose a civil monetary penalty based on his financial condition.
The Commission previously obtained default judgments against two defendants and settled its action against one other defendant. The action remains pending against the remaining nine defendants and one relief defendant.
For further information, see Litigation Release Nos. 19207 (April 28, 2005), 19645 (April 7, 2006), 19699 (May 15, 2006), and 19957 (January 4, 2007), and Exchange Act Release No. 59766 (April 14, 2009). [SEC v. Exotics.com, Inc., et al., Civil Action No. 2:05-cv-00531-PMP-GWF USDC, (D. Nev.)] (LR-21028)
Immediate Effectiveness of Proposed Rule Change
A proposed rule change filed by Financial Industry Regulatory Authority (SR-FINRA-2009-026) making non-substantive, technical changes to the Code of Arbitration Procedure for Customer Disputes and the Code of Arbitration Procedure for Industry Disputes has become effective. Publication is expected in the Federal Register during the week of May 11. (Rel. 34-59872)
Proposed Rule Changes
The Commission issued a notice of a proposed rule change (SR-CBOE-2008-55), as modified by Amendment No. 1, filed by the Chicago Board Options Exchange relating to its margin requirements. Publication is expected in the Federal Register during the week of May 11. (Rel. 34-59876)
The Commission issued a notice of a proposed rule change (SR-ISE-2007-121), as modified by Amendment No. 1, filed by the International Securities Exchange relating to its margin requirements. Publication is expected in the Federal Register during the week of May 11. (Rel. 34-59877)
The Financial Industry Regulatory Authority filed a proposed rule change (SR-FINRA-2007-009) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 and Rule 19b-4 thereunder that proposes to modernize and simplify NASD Rule 2720 (Distributions of Securities of Members and Affiliates — Conflicts of Interest), which governs public offerings of securities in which a member with a conflict of interest participates, and make corresponding changes to FINRA Rule 5110 (Corporate Financing Rule). Publication is expected in the Federal Register during the week of May 11. (Rel. 34-59880)
Municipal Securities Rulemaking Board has filed a proposed rule change (SR-MSRB-2009-05) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 and Rule 19b-4 thereunder relating to the subscription service for continuing disclosure documents through the Electronic Municipal Market Access system (EMMA®). Publication is expected in the Federal Register during the week of May 11. (Rel. 34-59881)
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