Lori Richards, Director of the Office of Compliance Inspections and Examinations, to Leave SEC
The Securities and Exchange Commission announced today that Lori A. Richards, Director of the SEC's Office of Compliance Inspections and Examinations (OCIE), plans to leave the agency after more than two decades of government service.
Ms. Richards has been the Director of OCIE since it was created by Chairman Arthur Levitt in May 1995. As its Director, Ms. Richards managed the SEC's nationwide examination oversight programs for investment advisers, hedge fund managers, mutual funds, broker-dealers, clearing agencies, transfer agents, trading markets, self-regulatory organizations and credit rating agencies. She spearheaded numerous examination initiatives, including targeted examination sweeps focused on emerging compliance risks, as well as routine, cause, and other examination reviews of industry firms for compliance with the law.
Ms. Richards created a risk assessment function and program in OCIE, and led efforts to enhance the surveillance and oversight of SEC-registered firms. To foster stronger compliance in the securities industry, under her leadership OCIE created the CCOutreach program and issued ComplianceAlerts and numerous public reports describing compliance practices in the securities industry. She upgraded training for the SEC's examiners and helped to improve the use of technology in the SEC's oversight of the securities industry.
During her tenure, she helped the agency identify and address a wide range of compliance issues, including abusive trading by exchange specialists, shortcomings in credit rating agencies practices and disclosures, conflicts of interest by pension consultants, asset valuation problems, insider trading, sales of securities to seniors at "free lunch" seminars, soft dollars, gifts, gratuities and other undisclosed business arrangements, mutual funds' payments for "shelf space" and many more issues.
Prior to becoming the Director of OCIE, Ms. Richards was Executive Assistant and Senior Adviser to Chairman Arthur Levitt on policy and legal matters affecting the SEC. Prior to that, she was Associate Regional Administrator for Enforcement in the SEC's Los Angeles Regional Office, and held other positions in the SEC's Enforcement Program in Los Angeles from 1985 through 1994.
"Lori is known widely for her passionate and tireless service to the agency," SEC Chairman Mary Schapiro said. "I've had the honor and privilege of knowing and working with Lori for many years, and have always appreciated her dedication, leadership and integrity. I respect her decision to leave the SEC and am grateful for her many years of public service."
Ms. Richards said, "I'm honored to have been part of the SEC team, and to have had the opportunity to work for American investors. I'm enormously proud of the dedication and professionalism of the men and women in the SEC's examination program across the country, and of the important work we did together. After 14 years leading the SEC's exam corps and more than two decades at the SEC, I've decided to take on new challenges."
Ms. Richards received Presidential Rank Award for Distinguished Service in 2001 (the highest civilian award in the federal government), and the Presidential Rank Award for Meritorious Service in 1997. She received the SEC's Distinguished Service Award in 2008 (the SEC's highest award), and the Irving Pollack Award in 1992. She has a J.D. from Washington College of Law, and a B.A. in Political Science from Northern Illinois University.
OCIE Associate Director-Chief Counsel John Walsh will serve as Acting Director of OCIE when Ms. Richards steps down on August 7. Mr. Walsh is a 20-year veteran of the SEC, including service in the Office of General Counsel, the Division of Enforcement, and as Special Counsel to Chairman Arthur Levitt. He has been a member of OCIE's staff since its creation in 1995. (Rel. 2009-153)
SEC v. Jerry F. Wells, Jr.
The Securities and Exchange Commission announced that on July 6, 2009, it filed a Complaint in the United States District Court for the District of South Carolina against Jerry F. Wells, Jr. (Wells). The Complaint alleges that Wells, a resident of Columbia, South Carolina, served as the Executive Vice President and Chief Financial Officer of UCI Medical Affiliates, Inc. ("UCI" or the "Company"). UCI is a public issuer and a provider of nonmedical management and administrative services based in South Carolina.
The Complaint alleges that between 2003 and 2008, Wells embezzled approximately $2.97 million from UCI through a variety of measures including: (1) using UCI's corporate credit card to pay personal expenses: (2) preparing false expense reports and submitting them for reimbursement; and (3) submitting unsupported check requests for non-business expenses, including construction work on Wells' personal residences and personal credit card accounts. The Complaint further alleges that Wells capitalized the expenses as fixed assets on the Company's balance sheet, rather than expensing them in their entirety as they were incurred, causing UCI to overstate its net earnings in the affected periods. According to the Complaint, to justify capitalizing these expenses, Wells altered invoices from contractors performing work on his personal residences to suggest that the work was for one of UCI's facilities, and provided fraudulent work descriptions on the related check requests. The Complaint also alleges that Wells signed each of the Company's Forms 10-Q and 10-K and accompanying Sarbanes-Oxley certifications, thereby misrepresenting that they did not contain any untrue statements of material fact. The Complaint further alleges that, in connection with the audit of the Company's annual financial statements, Wells also signed multiple management representation letters to UCI's auditors, thereby misrepresenting that the Company's financial statements were prepared in conformity with GAAP.
The Complaint charges Wells with violations of Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (Exchange Act), and Rules 10b-5, 13b2-1, 13b2-2 and 13a-14, promulgated thereunder. Further, the Complaint charges Wells with aiding and abetting the Company'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, promulgated thereunder. Without admitting or denying the allegations in the complaint, Wells consented to the entry of an order (1) enjoining him from violating these statutes and rules and (2) barring him from serving as an officer and director of a public company. [SEC v. Jerry F. Wells, Jr., Civil Action No. 3:09-CV-01792-MJP (D. S.C.)] (LR-21119)
SEC Charges Broker-Dealer, Founder, Executive and Registered Representatives in Multi-Million Dollar Transatlantic Stock Manipulation Scheme
On July 8, the Securities and Exchange Commission filed a civil injunctive action in the United States District Court for the Southern District of New York charging a New York based broker-dealer, Sky Capital LLC a/k/a Granta Capital LLC (referred to herein as Sky Capital) for using fraudulent boiler room tactics between September 2002 and November 2006 to raise more than $61 million from investors in two related companies - Sky Capital Holdings Ltd. and Sky Capital Enterprises, Inc. (the Sky Entities). The Commission also charged Sky Capital's founder, former President and CEO, Ross Mandell, the firm's former COO, Stephen Shea, and four registered representatives, Adam Harrington (a/k/a Adam Rukdeschel), Arn Wilson, Michael Passaro, and Robert Grabowski, for orchestrating and participating in the fraudulent scheme designed to fraudulently induce numerous individuals to invest in the Sky Entities.
According to the Commission's complaint, Mandell orchestrated the fraudulent scheme with the assistance of Shea and the other defendants. According to the complaint, Mandell directed Sky Capital brokers to make material misrepresentations, and fail to disclose material information, to induce their Sky Capital customers to purchase stock in the Sky Entities. Mandell also personally made material misrepresentations to his customers. Additionally, the defendants implemented and enforced a "no-net sales" policy, which had the effect of preventing investors from selling their Sky Entities' stocks that were otherwise publicly traded on the Alternative Investment Market of the London Stock Exchange. The no-net sales policy had the effect of artificially inflating the price of the Sky Entities' stocks. Moreover, as a result of the "no-net sales" policy, which the defendants did not disclose to their customers, numerous Sky Capital investors were unable to sell their shares in the Sky Entities before trading in those stocks was suspended thereby rendering the investments worthless.
The SEC's complaint further alleges that the fraudulent scheme was extremely profitable for the defendants. Between 2002 and 2006, Sky Capital raised over $61 million from investors in the U.S. and the U.K. Mandell used the investor funds to subsidize his own lifestyle, including using investor funds for various personal expenses, including first-class travel, five-star hotel stays, expensive meals, adult entertainment, and child-care expenses. Mandell also used investor funds to richly compensate the other individual defendants by paying them hefty undisclosed commissions and giving them other perks.
The SEC's complaint charges each of the defendants with violations 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 thereunder. The complaint also, in the alternative, charges Shea with aiding and abetting the other defendants' violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. Additionally, the SEC's complaint charges Sky Capital with violating Section 15(c) of the Exchange Act, and Mandell with aiding and abetting Sky Capital's violation of Section 15(c) of the Exchange Act. The complaint seeks a final judgment permanently enjoining the defendants from future violations of the above provisions of the federal securities laws, ordering them to disgorge their ill-gotten gains plus prejudgment interest, and ordering them to pay civil penalties. The complaint also seeks to permanently prohibit Mandell from acting as an officer or director of any registered public company. [SEC v. Sky Capital LLC a/k/a Granta Capital LLC, Ross Mandell, Stephen Shea, Adam Harrington (a/k/a Adam Rukdeschel), Arn Wilson, Michael Passaro and Robert Grabowski, Civil Action No. 09-CV-6129 (SDNY) (PAC)] (LR-21120)
INVESTMENT COMPANY ACT RELEASES
Banc of America Securities LLC, et al.
The Commission has issued an order to Banc of America Securities LLC, et al. (BAS) under Section 9(c) of the Investment Company Act exempting applicants and any other company of which BAS or Banc of America Investment Services, Inc. is or becomes an affiliated person from Section 9(a) of the Act with respect to an injunction entered by the U.S. District Court for the Southern District of New York on June 9, 2009. (Rel. IC-28810 - July 7)
Deutsche Bank Securities Inc., et al.
The Commission has issued an order to Deutsche Bank Securities Inc., et al. (DBSI) under Section 9(c) of the Investment Company Act of 1940 (Act) exempting applicants and any other company of which DBSI is or becomes an affiliated person from Section 9(a) of the Act with respect to an injunction entered by the U.S. District Court for the Southern District of New York on June 9, 2009. (Rel. IC-28811 - July 7)
RBC Capital Markets Corporation, et al.
The Commission has issued an order to RBC Capital Markets Corporation, et al. (RBC) under Section 9(c) of the Investment Company Act of 1940 (Act) exempting applicants and any other company of which RBC is or becomes an affiliated person from Section 9(a) of the Act with respect to an injunction entered by the U.S. District Court for the Southern District of New York on June 9, 2009. (Rel. IC-28812 - July 7)
X Exchange-Traded Funds, Inc., et al.
An order has been issued on an application filed by X Exchange-Traded Funds, Inc., et al. The order amends a prior order that permits: (a) open-end management investment companies, whose series are based on certain equity securities indices, to issue shares (Shares) redeemable only in large aggregations (Creation Units); (b) secondary market transactions in the Shares to occur at negotiated prices; (c) dealers to sell Shares to purchasers in the secondary market unaccompanied by a prospectus when prospectus delivery is not required by the Securities Act of 1933; and (d) certain affiliated persons of the series to deposit securities into, and receive securities from, the series in connection with the purchase and redemption of Creation Units (Prior Order). The order amends the Prior Order to provide that: (a) a series will invest at least 80%, rather than 90%, of its total assets in the component securities of its underlying index; (b) the underlying index may be reconstituted and rebalanced no more frequently than on a monthly, rather than on a quarterly, basis; and (c) the Indicative Optimized Portfolio Value may be calculated and disseminated by a national securities exchange or by a major market data vendor. The order also amends the Prior Order by deleting the relief granted in the Prior Order from the requirements of Section 24(d) of the Investment Company Act of 1940 and revising the applications on which the Prior Order was issued accordingly and amending the terms and conditions of the applications with respect to certain disclosure requirements. (Rel. IC-28814 - July 7)
Approval of Proposed Rule Change
The Commission approved a proposed rule change as amended, SR-DTC-2006-16, filed by the Depository Trust Company under Section 19(b)(1) of the Exchange Act. The approved rule change amends DTC rules to update, standardize, and restate the requirements for the FAST program and for transfer agents participating in DRS, and to delineate the responsibilities of transfer agents with respect to securities held by transfer agents as part of the FAST program. Publication is expected in the Federal Register during the week of July 6. (Rel. 34-60196)
Immediate Effectiveness of Proposed Rule Changes
A proposed rule change filed by the National Securities Clearing Corporation (SR-NSCC-2009-04 ) to amend Footnote 1 of Addendum O to NSCC's rules has become effective pursuant to Section 19(b)(3)(A)(iii) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of July 6. (Rel. 34-60234)
A proposed rule change filed by the Chicago Board Options Exchange amending its CBOE Stock Exchange Fees Schedule to establish an additional transaction fee related to stock option trades (SR-CBOE-2009-046) 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 July 6. (Rel. 34-60235)
A proposed rule change filed by the Chicago Stock Exchange (SR-CHX-2009-09) to add the Post Only and Post Only ISO order types 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 July 6. (Rel. 34-60243)
A proposed rule change filed by NASDAQ OMX BX to provide an optional anti-internalization functionality (SR-BX-2009-031) 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 July 6. (Rel. 34-60246)
A proposed rule change filed by the NASDAQ Stock Market (SR-NASDAQ-2009-063) to establish permanently the Exchange's Quarterly Option Series (QOS) Pilot Program and to expand and conform the QOS program to that of other exchanges 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 July 6. (Rel. 34-60248)
A proposed rule change filed by NASDAQ OMX PHLX (SR-Phlx-2009-50) to establish permanently the Exchange's Quarterly Option Series (QOS) Pilot Program 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 July 6. (Rel. 34-60249)
Proposed Rule Changes
Financial Industry Regulatory Authority filed a proposed rule change under Rule 19b-4 (SR-FINRA-2009-045) relating to transaction-related charges for trade reporting to the OTC Reporting Facility. Publication is expected in the Federal Register during the week of July 6. (Rel. 34-60239)
The Commission issued notice of a proposed rule change submitted by NASDAQ OMX BX (SR-BX-2009-021) pursuant to Rule 19b-4 under the Securities Exchange Act of 1934 to amend its Restated Certificate of Incorporation and By-Laws. Publication is expected in the Federal Register during the week of July 6. (Rel. 34-60247)
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