Securities and Exchange Commission Suspends Trading in the Securities of Ten Issuers for Failure to Make Required Periodic Filings
The Securities and Exchange Commission announced the temporary suspension of trading in the securities of the following issuers, commencing at 9:30 a.m. EDT on June 24, 2009, and terminating at 11:59 p.m. EDT on July 8, 2009.
The Commission temporarily suspended trading in the securities of these ten issuers due to a lack of current and accurate information about the companies because they have not filed periodic reports with the Commission in over two years. This order was entered pursuant to Section 12(k) of the Securities Exchange Act of 1934 (Exchange Act).
The Commission cautions brokers, dealers, shareholders and prospective purchasers that they should carefully consider the foregoing information along with all other currently available information and any information subsequently issued by these companies.
Brokers and dealers should be alert to the fact that, pursuant to Exchange Act Rule 15c2-11, at the termination of the trading suspensions, no quotation may be entered relating to the securities of the subject companies unless and until the broker or dealer has strictly complied with all of the provisions of the rule. If any broker or dealer is uncertain as to what is required by the rule, it should refrain from entering quotations relating to the securities of these companies that have been subject to a trading suspension until such time as it has familiarized itself with the rule and is certain that all of its provisions have been met. Any broker or dealer with questions regarding the rule should contact the staff of the Securities and Exchange Commission in Washington, DC at (202) 551-5720. If any broker or dealer enters any quotation which is in violation of the rule, the Commission will consider the need for prompt enforcement action.
If any broker, dealer or other person has any information which may relate to this matter, they should immediately communicate it to the Delinquent Filings Branch of the Division of Enforcement at (202) 551-5466, or by e-mail at DelinquentFilings@sec.gov. (Rel. 34-60166)
SEC Proposes Rule Amendments to Strengthen Regulatory Framework for Money Market Funds
The Securities and Exchange Commission today proposed rule amendments designed to significantly strengthen the regulatory framework for money market funds to increase their resilience to economic stresses and reduce the risks of runs on the funds.
The SEC is seeking public comment on the proposals, which would require money market funds to maintain a portion of their portfolios in highly liquid investments, reduce their exposure to long-term debt, and limit their investments to only the highest quality portfolio securities. The proposals also would require the monthly reporting of portfolio holdings, and allow the suspension of redemptions if a fund "breaks the buck" to allow for the orderly liquidation of fund assets. A money market fund "breaks the buck" when its net asset value falls below $1 per share, meaning investors in that fund will lose money.
"These proposals are designed to increase the ability of money market funds to weather future economic storms," said SEC Chairman Mary Schapiro. "The stability of money market funds in times of turmoil is enormously important both for investors and for the securities markets. The proposals also would improve the operations of money market funds and oversight of their investments during calmer times, which can further protect funds and increase public awareness of potential risks."
Andrew J. Donohue, Director of the SEC's Division of Investment Management, added, "The amendments proposed by the Commission today go a long way in addressing the most significant issues raised during the past two years for money market funds and their investors. They are designed to help protect funds from the most troublesome areas of risk, and to enable investors and the Commission to obtain important information about funds."
The proposed amendments would, among other things:
The proposals also would:
In addition, the SEC is seeking comment on other issues related to the regulation of money market funds, including whether money market funds should, like other types of mutual funds, effect shareholder transactions at the market-based net asset value (i.e., whether they should have "floating" rather than stabilized net asset values), and whether to require that funds satisfy redemption requests in excess of a certain size through in-kind redemptions. The Commission may propose further amendments after it considers the comments it receives on these matters.
The SEC also is seeking comment on other issues, including alternatives with respect to the role of credit rating agencies in money market fund regulation.
Public comments on today's proposed rule amendments must be received by the Commission within 60 days after their publication in the Federal Register. (Press Rel. 2009-142)
Following is a schedule of Commission meetings, which will be conducted under provisions of the Government in the Sunshine Act. Meetings will be scheduled according to the requirements of agenda items under consideration.
Open meetings will be held in the Auditorium, Room L-002 at the Commission's headquarters building, 100 F Street, N.E., Washington, D.C. Visitors are welcome at all open meetings, insofar as space is available. Persons wishing to photograph or videotape Commission meetings must obtain permission in advance from the Secretary of the Commission. Persons wishing to tape record a Commission meeting should notify the Secretary's office 48 hours in advance of the meeting.
Any member of the public who requires auxiliary aids such as a sign language interpreter or material on tape to attend a public meeting should contact SECInterpreter@SEC.gov at least three business days in advance. For any other reasonable accommodation related disability contact DisabilityProgramOfficer or call 202-551-4158.
Open Meeting - Wednesday, July 1, 2009 - 10:00 a.m.
The subject matter of the Open Meeting will be:
Item 1: The Commission will consider whether to propose amendments to the proxy rules under the Securities Exchange Act of 1934 to set forth requirements for U.S. registrants that have received financial assistance under the Troubled Asset Relief Program and that are required, pursuant to Section 111(e) of the Emergency Economic Stabilization Act of 2008, to include an advisory shareholder vote on executive compensation.
Item 2: The Commission will consider whether to approve the proposed rule change, as modified by Amendment No. 4, filed by the New York Stock Exchange, Inc. to amend NYSE Rule 452 and corresponding Listed Company Manual Section 402.08 to eliminate broker discretionary voting for the election of directors, except for companies registered under the Investment Company Act of 1940, and to codify two previously published interpretations that do not permit broker discretionary voting for material amendments to investment advisory contracts with an investment company.
Item 3: The Commission will consider whether to propose amendments to rules under the Securities Act of 1933, the Securities Exchange Act of 1934 and the Investment Company Act of 1940 to enhance the disclosures that registrants are required to make about compensation and other corporate governance matters, and to clarify certain of the rules governing proxy solicitations.
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.
Commission Orders Hearings on Registration Suspension or Revocation Against Ten Companies for Failure to Make Required Periodic Filings
In conjunction with today's trading suspension, the Commission also instituted public administrative proceedings to determine whether to revoke or suspend for a period not exceeding twelve months the registration of each class of the securities of ten companies for failure to make required periodic filings with the Commission:
In this Order, the Division of Enforcement (Division) alleges that the ten issuers are delinquent in their required periodic filings with the Commission.
In this proceeding, instituted pursuant to Exchange Act Section 12(j), a hearing will be scheduled before an Administrative Law Judge. At the hearing, the judge will hear evidence from the Division and the Respondents to determine whether the allegations of the Division contained in the Order, which the Division alleges constitute failures to comply with Exchange Act Section 13(a) and Rules 13a-1 and 13a-13 thereunder, are true. The judge in the proceeding will then determine whether the registrations pursuant to Exchange Act Section 12 of each class of the securities of these Respondents should be revoked or suspended for a period not exceeding twelve months. The Commission ordered that the Administrative Law Judge in this proceeding issue an initial decision not later than 120 days from the date of service of the order instituting proceedings. (Rel. 34-60167; File No. 3-13527)
Federal Jury Delivers Verdict in SEC's Favor; Finds Former Fund Manager, Steven E. Nothern, Liable for Insider Trading of U.S. Treasury 30-Year Bonds
The Securities and Exchange Commission announced today that on June 22, 2009, a federal jury in Boston, Massachusetts, returned a verdict in its favor against Steven E. Nothern, a former Senior Vice President and manager of seven fixed income mutual funds for Massachusetts Financial Services Company (MFS). This action is one of several brought by the Commission arising from trading in U.S. Treasury 30-year bonds.
The Commission's complaint against Nothern alleged that Peter J. Davis, Jr., a Washington, D.C. based consultant, marketed himself to Wall Street clients by claiming special access that enabled him "to get Washington information ahead of the media," and by promising clients "the first call on investment issues they care about." Nothern, who managed seven fixed income mutual funds for MFS, was Davis' primary contact at MFS.
The complaint alleged that, since 1994, Davis had attended the Treasury Department's quarterly refunding press conferences under an explicit agreement that he would honor the news embargo that Treasury imposed until the designated public announcement time. At these press conferences, the Treasury Department announced the Federal Government's financing requirements for the coming quarter. The complaint further alleged that at the Oct. 31, 2001, refunding press conference, Treasury Department officials announced three times that the information being made available was embargoed until 10:00 a.m. The press conference ended at approximately 9:25 a.m. Then, Davis, despite the officials' warnings, and in violation of his prior explicit agreement to abide by the embargo, placed a series of cell phone calls to his clients, including Nothern, and told Nothern that the Treasury Department was suspending future long bond issuances. The complaint charged that Nothern knew, from a voice mail which Davis left him and which he listened to, that Davis had learned about the suspension of 30-year bond issuances directly from the Treasury Department, and that the news was embargoed until a scheduled 10:00 a.m. press announcement.
According to the complaint, after Nothern heard the news of the Treasury's decision to cease issuance of the long bond from Davis on the morning of Oct. 31, 2001, and before the news became public, Nothern and other MFS portfolio managers that he tipped bought $65 million in par value of 30-year bonds for funds that they managed, generating approximately $3.1 million in illegal profits.
After deliberating for three hours, the jury returned a verdict finding that Nothern violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The Commission's complaint seeks as relief a permanent injunction, disgorgement with pre-judgment interest, and a civil money penalty. The court will determine the appropriate remedies against Nothern at a later date. [SEC v. Steven E. Nothern, United States District Court for the District of Massachusetts, Civil Action No. 05-CV-10983 (NMG)] (LR-21099)
SEC Charges California Hedge Fund Manager for Operating Ponzi-Like Scheme
The Securities and Exchange Commission today charged a Chula Vista, California resident and two entities he controls for operating a Ponzi-like scheme through five hedge funds.
The Commission alleges that Moises Pacheco, Advanced Money Management, Inc. (AMM), and Business Development & Consulting Co. (BD&C) raised $14.7 million from more than 200 investors over a 3-1/2-year period, acting as investment advisers to the five self-described hedge funds - AP Premium Value Funds I through IV and Capital Partnership Group. According to the Commission's complaint, Pacheco told investors that he had developed a lucrative investment strategy involving the purchase and sale of covered call options, and that the hedge funds exclusively relied upon this strategy to generate trading profits ranging from 30 percent to 48 percent per year. In reality, Pacheco did not generate the returns he claimed to have made, and instead used investor principal to pay purported returns until the scheme collapsed.
According to the Commission's complaint, filed in U.S. District Court for the Southern District of California, the hedge funds generated trading profits of only about $367,000, but paid investors purported returns of more than $9.7 million. The Commission alleges that the defendants thus operated a Ponzi-like scheme and further misused investor principal by transferring their money to Pacheco, entities under his control, or numerous third parties for reasons having nothing to do with the purported trading.
The Commission alleges that Pacheco claimed that the hedge funds had generated returns ranging from 2.5 to 4 percent per month during their existence, and continued to claim that they generated returns in that range until January 2008, when he reduced the returns to 1.25 percent per month. Pacheco told fund investors that the reduction was due to deteriorating economic conditions. Most fund investors live in the Chula Vista, California area, and know either Pacheco, one of his friends or family members, or another investor. The Commission alleges that Pacheco made no effort to determine whether the hedge fund investors were accredited or sophisticated, and did not provide investors with financial statements. Neither Pacheco nor his entities have ever been registered with the Commission.
The Commission's complaint alleges that Pacheco, AMM, and BD&C violated Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Sections 206(1), (2), and (4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder and seeks permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest thereon, and financial penalties. Additionally, the complaint names the hedge funds and various third parties receiving investor money as relief defendants, and seeks from them the disgorgement of all such amounts. The complaint also seeks the court's appointment of a receiver over AMM and BD&C. [SEC v. Moises Pacheco, Advanced Money Management, Inc., and Business Development & Consulting Co. , et al., Case No. 09-CV-1355-W RBB, United States District Court for the Southern District of California] (LR-21101)
SEC Charges Investment Adviser in Multi-Million Dollar Ponzi Scheme
The Securities and Exchange Commission today charged Michael C. Regan (Regan) and his firm, Regan & Company (Regan & Co.), for conducting a multi-million dollar Ponzi scheme that touted safe investments and provided lofty, but false, investment returns. The Commission alleges that from 2001 through April 2008, Regan and Regan & Co. fraudulently obtained at least $15.9 million and ultimately caused investors to lose at least $6.69 million through Regan's misappropriation and trading losses. Regan and Regan & Co. have agreed to settle the Commission's charges, without admitting or denying the allegations.
The Commission's action, filed in the U.S. District Court for the Southern District of New York, alleges that over an eight year period Regan offered and sold securities in his now defunct investment fund, dubbed the River Stream Fund, by falsely representing to investors that he would invest their funds in the stock market. Regan also represented that, because of his trading expertise and successful investment record, investors could expect annual returns averaging twenty percent, with minimal risk to their principal. Contrary to his representations, Regan did no securities trading at all for several years, used less than half of the funds entrusted to him for trading purposes, and suffered substantial losses on investments that he did make. Regan repeatedly concealed his misconduct and deceived investors by preparing and sending them fictitious account statements and tax forms showing artificially inflated balances and returns. Instead of protecting the investors' principal and delivering the promised returns, Regan misappropriated and used millions of dollars of investor funds to support his extravagant lifestyle and to satisfy withdrawal requests from some investors.
The Commission's complaint charges Regan and Regan & Co. with violating Section 17(a) of the Securities Act of 1933, Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934, and Sections 206(1), 206(2), 206(4) and Rule 206(4)-8 of the Investment Advisers Act of 1940. The complaint seeks permanent injunctions, disgorgement of ill-gotten gains plus prejudgment interest, and civil monetary penalties against both Regan and Regan & Co.
Regan and Regan & Co. agreed to settle the Commission's claims against them and consented to the entry of a judgment, subject to approval by the court, that enjoins them from violating or aiding or abetting future violations of the above provisions of the securities laws, orders them jointly and severally liable for $8,700,933.04 in disgorgement and prejudgment interest (which will be deemed satisfied by entry of the restitution order that is anticipated in the parallel criminal case), and defers determination of civil money penalties to a later date.
Separately, today the United States Attorney's Office for the Eastern District of New York (USAO) announced criminal charges against Regan for the same misconduct alleged in the Commission's complaint.
The Commission acknowledges the assistance and cooperation of the USAO and the New York Office of the United States Postal Service in this matter. [SEC v. Regan & Company and Michael C. Regan, United States District Court for the Southern District of New York, Civil Action No. 09-CIV-5799 (S.D.N.Y.)] (LR-21102)
Court Bars Former CEO of a Massachusetts Biotechnology Company from Serving as an Officer or Director of a Public Company for Two Years
The Securities and Exchange Commission today announced that on June 24, 2009, a United States District Court Judge for the District of Massachusetts found that Richard F. Selden of Lincoln, Massachusetts "is presently unfit to serve as an officer or director of a public company" and barred Selden from acting in such a role for two years. Selden was the former CEO of Transkaryotic Therapies (TKT), a biotechnology company that was headquartered in Cambridge, Massachusetts, and was publicly-traded until it was acquired in July 2005. The Commission filed an enforcement action against Selden in September 2005 alleging that he made misleading statements about TKT's flagship drug. On July 8, 2008, the Court entered a final judgment by consent against defendant Selden, enjoining him from violating the antifraud and other provisions of the federal securities laws and ordering him to pay a $125,000 civil penalty and $1,041,417 in disgorgement and prejudgment interest related to his sales of TKT stock during the period of the alleged fraud, but leaving the issue of an officer and director bar open to a later decision by the Court.
Selden was the only defendant in a civil injunctive action filed on Sept. 1, 2005, alleging that he made materially misleading statements between October 2000 and October 2002 concerning results of TKT's clinical trials and its U.S. Food and Drug Administration (FDA) application for its flagship drug, Replagal. The Commission's complaint alleged that, during the relevant time period, Selden and, at his direction, TKT, made positive statements concerning Replagal's clinical benefits, describing its clinical trials as a success, and made positive statements about Replagal's chance of being approved by FDA. However, the complaint alleged that Selden knew, but failed to disclose, material negative information, including that Replagal's clinical trial failed to meet its primary objective and FDA had told TKT on several occasions that it was a failed study and had recommended additional clinical trials. The complaint further alleged that Selden benefited by selling 90,000 shares of TKT stock between May 2001 and February 2002, prior to TKT's disclosure of some negative information about Replagal on Oct. 2, 2002, which caused TKT's stock price to fall. [SEC v. Richard F. Selden, Civil Action No. 05-11805, USDC, D. Mass. (Gorton, J.)] (LR-21103)
INVESTMENT COMPANY ACT RELEASES
The Managers Funds, et al.
An order has been issued on an application filed by The Managers Funds, et al. under Section 6(c) of the Investment Company Act for an exemption from Sections 18(f) and 21(b) of the Act, under Section 12(d)(1)(J) of the Act for an exemption from Section 12(d)(1) of the Act, under Sections 6(c) and 17(b) of the Act for an exemption from Sections 17(a)(1), 17(a)(2) and 17(a)(3) of the Act, and under Section 17(d) of the Act and Rule 17d-1 under the Act to permit certain joint arrangements. The order permits certain registered open-end management investment companies to participate in a joint lending and borrowing facility. (Rel. IC-28770 - June 23)
Immediate Effectiveness of Proposed Rule Changes
The Options Clearing Corporation filed a proposed rule change (SR-OCC-2009-11) under Section 19(b)(3)(A)(ii) of the Securities Exchange Act of 1934, which proposed rule change became effective upon filing, that reduces fees for certain ancillary services. Publication is expected in the Federal Register during the week of June 22. (Rel. 34-60144)
A proposed rule change filed by NASDAQ OMX PHLX (SR-Phlx-2009-46) relating to $1 strikes for Reduced Value Nasdaq 100 Options (MNX) 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 June 22. (Rel. 34-60156)
Approval of Proposed Rule Change
The Commission approved a proposed rule change submitted by NASDAQ OMX BX to retroactively amend the Fee Schedule to clarify and correct references to the volume discount given to Market Makers (SR-BX-2009-025) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of June 22. (Rel. 34-60163)
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