Delinquent Filer's Stock Registration Revoked
The registration of the registered securities of Keystone Ventures, Inc. (Keystone) has been revoked. Keystone had repeatedly failed to file required annual and quarterly reports with the Securities and Exchange Commission. Thus, Keystone violated a crucial provision of the federal securities laws that requires public corporations to publicly disclose current, accurate financial information so that investors may make informed decisions. The revocation was ordered in an administrative proceeding before an administrative law judge. (Rel. 34-60350; File No. 3-13523)
In the Matter of Perry Corp.
On July 21, the Commission issued an Order Instituting Public Administrative and Cease-and-Desist Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934 and Section 203(e) of the Investment Advisers Act of 1940, Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order (Order). The Order finds that Perry, a New York-based investment adviser, failed to disclose that it had acquired nearly ten percent of the common stock of Mylan Laboratories Inc. (now Mylan Inc.) (Mylan). At the time, Mylan had announced a proposed acquisition, subject to shareholder approval, of King Pharmaceuticals, Inc. (King). Perry acquired the Mylan shares in order to vote the shares in favor of the merger, because Perry stood to profit if the merger went through. Perry was required to disclose its acquisition of Mylan shares, pursuant to Section 13(d) of the Securities Exchange Act of 1934, but failed to do so in a timely manner.
The Commission's Order finds that Perry entered into an investment strategy known as "merger arbitrage," in which Perry would profit from consummation of the Mylan-King merger. To increase the likelihood of consummation, Perry separately purchased Mylan shares, in order to vote the shares in favor of the merger. At the same time, Perry entered into a series of hedge transactions designed to avoid any financial exposure from its ownership of the Mylan shares. Perry ultimately acquired the voting rights to nearly ten percent of Mylan's outstanding shares without any economic risk of share ownership. Because Perry obtained these shares in transactions that were hidden from the market and because Perry failed to file the required disclosure statement after acquiring over five percent of Mylan's shares, Perry was able to conceal its acquisition and ownership of Mylan shares from the marketplace. Perry's ability to acquire the voting rights to Mylan shares without disclosure enhanced its ability to profit from its merger arbitrage position.
According to the Commission's Order, Perry determined not to file the required disclosure statement after allegedly concluding that it acquired the Mylan shares "in the ordinary course of its business" and was thus entitled to defer its reporting obligations. However, Perry's acquisition of Mylan shares was not "in the ordinary course" of its business: qualified institutional investors can defer their Section 13(d) reporting obligations only when they acquire securities as part of their ordinary market making or passive investment activities. When institutional investors, such as Perry, acquire ownership of securities for the purpose of influencing the direction or management of an issuer or affecting or influencing the outcome of a transaction - such as acquiring shares for the primary purpose of voting those shares in a contemplated merger - the acquisition is not made and the shares are not held in the "ordinary course" of business. Perry was required to disclose its acquisition of more than five percent of Mylan's shares within ten days of acquisition, and by failing to do so Perry willfully violated Section 13(d) of the Exchange Act and Rule 13d-1 thereunder.
Based on the above, the Order censures Perry, orders that Perry cease and desist from committing or causing any violations and any future violations of Section 13(d) of the Exchange Act and Rule 13d-1 thereunder, and imposes a civil money penalty in the amount of $150,000. Perry consented to the issuance of the Order without admitting or denying any of the Commission's findings. (Rels. 34-60351; IA-2907; File No. 3-13561)
In the Matter of Toltec Real Estate Corp.
An Administrative Law Judge issued an Order Making Findings and Revoking Registrations by Default in Toltec Real Estate Corp., Admin. Proc. 3-13516 (July 21, 2009) (Default Order). The Default Order finds that eight Respondents failed to comply with Section 13(a) of the Securities Exchange Act of 1934 and Rules 13a-1 and 13a-13 thereunder by failing to file required periodic reports with the Securities and Exchange Commission. Based on these findings, the Default Order revokes the registrations of each class of registered securities of Toltec Real Estate Corp., Tong Ah Global Ventures Corp., TotalAxcess.com, Inc., Touch Tone America, Inc., Tour CFG, Inc., TradeQwest, Inc., TriTeal Corp., and Trojan Transition Corp. (Rel. 34-60355; File No. 3-13516)
In the Matter of Franklin Advisers, Inc.
The Securities and Exchange Commission has accepted an amended offer of settlement from Franklin Advisers, Inc. (Franklin) and issued an order modifying Franklin's undertaking to undergo periodic compliance reviews. As part of the Commission's order of Aug. 2, 2004, Franklin undertook to undergo, at least every other year, a compliance review by a third party concerning Franklin's "supervisory, compliance, and other policies and procedures designed to prevent and detect breaches of fiduciary duty and federal securities law violations by Franklin and its employees in connection with their duties and activities on behalf of and related to" mutual funds in the Franklin Templeton Investments complex. The modification to the 2004 order relieves Franklin of its obligation to continue to have compliance reviews by a third party. All other provisions of the 2004 order remain in effect. (Rels. IA-2906; IC-28821; File No. 3-11572)
In the Matter in Royal Spring Water, Inc.
An Administrative Law Judge issued an Order Making Findings and Revoking Registration by Default in Royal Spring Water, Inc. (Royal Spring), Admin. Proc. 3-13462 (Default Order). The Default Order finds that Royal Spring failed to comply with Section 13(a) of the Securities Exchange Act of 1934 and Rules 13a-1 and 13a-13 thereunder by failing to file required periodic reports with the Securities and Exchange Commission. Based on these findings, the Default Order revokes the registration of each class of registered securities of Royal Spring Water, Inc. (Rel. 34-60357; File No. 3-13462)
SEC Charges Medical Capital with $77 Million Offering Fraud
On July 16, the Securities and Exchange Commission filed an emergency court action to halt a $77 million offering fraud perpetrated by defendants Medical Capital Holdings, Inc. (MCHI), Medical Capital Corporation (MCC), Medical Provider Funding Corporation VI (MP VI), Sidney M. Field, and Joseph J. Lampariello. The SEC's complaint, filed in federal court in Orange County, California, alleges that the defendants defrauded investors by misappropriating about $18.5 million of investor funds and by misrepresenting to investors that no prior offerings had defaulted on or been late in making payments to investors of principal and/or interest.
MCHI is a medical receivables financing company that operates through MCC, its wholly-owned subsidiary, to administer several Special Purpose Corporations (SPCs), including MP VI. Field and Lampariello are directors of MCHI, MCC, and MP VI, with Field also serving as the defendant entities' CEO and Lampariello serving as their president and COO. Field, 63, resides in Villa Park, California, and Lampariello, 55, resides in Huntington Station, New York and Newport Beach, California.
The SEC's complaint alleges that, since 2003, MCHI, MCC, Fields, and Lampariello have raised over $2.2 billion through offerings of notes in MP VI and five other similarly structured SPCs. As of March 31, 2009, MP VI and its affiliated SPCs had over $1.2 billion in notes outstanding, and since August 2008, five of the SPCs have been in default or late in paying principal and/or interest on $992.5 million in notes.
As alleged in the SEC's complaint, the defendants defrauded investors by misappropriating approximately $18.5 million of the $76.9 million raised through the sale of MP VI notes to pay administrative fees to MCC. The complaint alleges that these fee payments were contrary to representations in MP VI's original offering documents, which stated that administrative fees would not be paid out of proceeds from the sale of notes. The complaint also alleges that these fee payments were contrary to representations in MP VI's May 27, 2009 supplemental offering documents that less than $4 million had been used for purposes other than purchasing accounts receivables.
In addition, the SEC's complaint alleges that the defendants defrauded investors by misrepresenting in MP VI's offering documents that none of the SPCs affiliated with MP VI had defaulted on or been late in making payments of principal and/or interest to their respective investors. In fact, two MP VI-affiliated SPCs began defaulting on interest and/or principal payments in the same month that MP VI began its offering, and recently two other MP VI-affiliated SPCs have defaulted or been late in making interest payments.
The SEC's action seeks emergency relief, including an order temporarily enjoining all defendants from future violations of the antifraud provisions and freezing the assets of and appointing a temporary receiver over MCHI, MCC, and MP VI. The SEC also seeks preliminary and permanent injunctions, disgorgement, and civil penalties against all defendants. [SEC v. Medical Capital Holdings, Inc., Medical Capital Corporation, Medical Provider Funding Corporation VI, Sidney M. Field; and Joseph J. Lampariello, Civil Action No. SA CV 09-818 DOC (RNBx) (C.D. Cal.) (LR-21141)
SEC Charges Two Real Estate Companies and Founder for Securities Fraud in Connection With Sale of Investments in Discounted, Pre-Construction Condominium Units
The Securities and Exchange Commission today announced the filing and simultaneous settlement of a civil action against The Formula, Inc., The Formula, LLC (collectively, Formula), and Brian Ackerman Neiman, of Fort Lauderdale, Florida, The Formula's sole owner, for selling unregistered securities in the form of investment contracts in real estate developments and, among other things, making misleading statements about The Formula's success rate.
The Commission's complaint alleges that from at least 2002 until mid-2007, The Formula sold unregistered securities in the form of investment contracts in real estate developments. The Formula entered into bulk purchase agreements with developers to purchase a block of the condominium units in a condominium development, in exchange for a discount from the initial listing price of the condominiums. The Formula then solicited individuals to purchase units as a "joint venture" with The Formula, and promised that no investor would ever have to close on the transaction. Instead, The Formula or the developer would re-sell the unit once the development was completed, and all investors would realize a substantial profit.
According to the complaint, in connection with the sale of these investments, The Formula and Neiman made a number of material misstatements and omissions to prospective investors. The Formula misrepresented the success rate and profitability of its investments, often telling investors that they could expect profits ranging from 50% to 100% within two years, when the units would be sold or reassigned to other buyers. In fact, by late 2006, when The Formula was still touting its "sterling" track record on its website, approximately 60% of the investments were tied to unsuccessful projects where the developer was in default or in litigation with The Formula. In addition, The Formula misrepresented Neiman's background (and never disclosed his criminal history).
The Commission's complaint further alleges that during its operation, The Formula raised over $68 million from 330 investors nationwide and internationally. The vast majority of investors did not receive any profit (although they did receive back the deposits they initially paid to reserve the units). Shortly after the SEC commenced its investigation, The Formula ceased soliciting new investors for projects and, to date, over $65 million in deposits have been returned to investors.
Without admitting or denying the allegations in the Commission's Complaint, The Formula and Neiman have consented to the entry of final judgments enjoining them from violating sections 5(a), 5(c), 17(a)(2), and 17(a)(3) of the Securities Act of 1933. Neiman also has consented to pay a civil penalty of $40,000. [SEC v. The Formula, Inc., The Formula, LLC, and Brian Ackerman Neiman, Civil Action No. 09-61074-CIV-ZLOCH/Rosenbaum (S.D. Florida)] (LR-21142)
SEC Charges Morgan Keegan & Company, Inc. for Fraudulent Marketing and Sales of Auction Rate Securities
The Securities and Exchange Commission today filed a complaint in the U.S. District Court for the Northern District of Georgia against Morgan Keegan & Company, Inc., a Tennessee-based broker-dealer, for misleading investors regarding the liquidity risks associated with auction rate securities (ARS) that the firm underwrote, marketed, or sold.
The Commission's complaint alleges that Morgan Keegan misrepresented to customers that ARS were safe, highly liquid investments that were comparable to money-market funds. According to the complaint, in 2007 and early 2008, Morgan Keegan was aware that the ARS market was deteriorating. Specifically, the complaint alleges that investor concerns about the creditworthiness of ARS insurers, auction failures in certain segments of the ARS market, increased clearing rates for auctions managed by Morgan Keegan and other broker-dealers, and higher than normal ARS inventories at Morgan Keegan collectively indicated that the risk of auction failures had materially increased. The SEC alleges that Morgan Keegan sold approximately $925 million of ARS to its customers between November 1, 2007, and March 20, 2008, but failed to inform its customers about liquidity risks for ARS, even after the firm decided to stop supporting the ARS market in February 2008.
The Commission's complaint alleges that Morgan Keegan violated the antifraud provisions of the federal securities laws, and seeks permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest, imposition of civil penalties, and an order requiring Morgan Keegan to repurchase ARS sold to its customers.
The Commission appreciates the assistance and cooperation of the Alabama Securities Commission and the New York Attorney General's Office. [SEC v. Morgan Keegan & Company, Inc., Civil Action No. 09-cv-1965 (N.D. Ga.)] (LR-21143)
SEC Charges Chief Compliance Officer in $554 Million Investment Fraud
On July 21, the Securities and Exchange Commission filed a civil injunctive action in the United States District Court for the Southern District of New York against the former Chief Compliance Officer of WG Trading Company Limited Partnership (WGTC), a Greenwich, Connecticut based broker-dealer, for assisting the principals of WGTC orchestrate a $554 million investment fraud. In February 2009, the Commission filed an emergency action to halt the investment fraud at WGTC and obtained preliminary injunctions, asset freezes and other relief against the WGTC principals who were the primary perpetrators of the fraud, Paul Greenwood and Stephen Walsh.
The defendant named in the Commission's complaint filed today is:
Deborah Duffy, age 53, resides in Mahwah, New Jersey. She was until February 2009, the Chief Compliance Officer of WGTC, a broker dealer registered with the Commission. Duffy was also a registered representative associated with WGTC and held Series 7, 24 and 63 licenses.
The Commission's complaint specifically alleges as follows:
From at least 1996 to February 2009, Duffy aided and abetted Greenwood and Walsh's fraudulent investment scheme. Greenwood and Walsh promised investors, which included several pension funds and educational institutions and endowments, that their money would be invested in a stock index arbitrage trading strategy at WGTC. Instead of investing the money as promised, Greenwood and Walsh treated the investors' account as their personal piggy-bank to pay for their lavish lifestyles, which included multi-million dollar homes, luxury cars, horses, and rare collectible items. The Commission's complaint alleges that Duffy assisted in the fraud by knowingly wiring investor funds to Greenwood and Walsh's personal bank accounts and by creating phony "promissory notes" to cover up the fraud. Duffy knew that the funds she was wiring out of the investors' account were being used by Greenwood and Walsh for their personal expenses and were not being invested at WGTC. Duffy also misappropriated as much as $292,000 of investors' money for herself by wiring investor funds to accounts that she controlled or to third-parties to pay for personal items she purchased.
The Commission's complaint charges Duffy with aiding and abetting violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. The complaint seeks a final judgment permanently enjoining Duffy from violating or aiding and abetting future violations of the federal securities laws and ordering her to disgorge her ill-gotten gains with prejudgment interest and to pay a civil monetary penalty. The Commission's investigation is ongoing. [SEC v. Deborah Duffy, Civil Action No. 09-6458 (SDNY)] (LR-21144)
INVESTMENT COMPANY ACT RELEASES
Embarcadero Funds, Inc. and Van Wagoner Capital Management, Inc.
An order has been issued on an application filed by Embarcadero Funds, Inc. and Van Wagoner Capital Management, Inc. exempting applicants from Section 15(a) of the Investment Company Act and Rule 18f-2 under the Act. The order permits the applicants to enter into and materially amend subadvisory agreements without shareholder approval and grants relief from certain disclosure requirements. (Rel. IC-28820 - July 20)
Immediate Effectiveness of Proposed Rule Changes
A proposed rule change filed by the Chicago Board Options Exchange to immediately add new FAZ and FAS Option Series within five days of expiration (SR-CBOE-2009-050) 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 20. (Rel. 34-60316)
A proposed rule change filed by the NYSE Amex (SR-NYSEAmex-2009-36) to amend NYSE Amex Equities Rule 2 to redefine the term "Member Organization" 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 20. (Rel. 34-60317)
A proposed rule change filed by the New York Stock Exchange (SR-NYSE-2009-63) to amend NYSE Rule 2 to redefine the term "Member Organization" 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 20. (Rel. 34-60318)
A proposed rule change filed by the NYSE Arca (SR-NYSEArca-2009-65) amending NYSE Arca Equities Rule 7.31(mm) 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 July 20. (Rel. 34-60321)
The Commission issued notice of filing and immediate effectiveness of proposed rule change (SR-NYSEArca-2009-68) filed by NYSE Arca under Rule 19b-4 of the Securities Exchange Act of 1934 implementing the schedule of fees and charges for exchange services. Publication is expected in the Federal Register during the week of July 20. (Rel. 34-60322)
A proposed rule change filed by the NASDAQ Stock Market to modify fees for members using the NASDAQ Market Center (SR-NASDAQ-2009-067) 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 20. (Rel. 34-60323)
A proposed rule change filed by the NASDAQ Stock Market to modify fees for members using the NASDAQ Market Center (SR-NASDAQ-2009-068) 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 20. (Rel. 34-60324)
A proposed rule change filed by the International Securities Exchange (SR-ISE-2009-47) relating to fee changes 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 July 20. (Rel. 34-60334)
A proposed rule change (SR-NASDAQ-2009-066) filed by the NASDAQ Stock Market to modify the processing of orders on the NASDAQ Options Market 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 July 20. (Rel. 34-60335)
Proposed Rule Change
The Financial Industry Regulatory Authority filed a proposed rule change (SR-FINRA-2009-044), to adopt FINRA Rules 2262 (Disclosure of Control Relationship with Issuer), 2269 (Disclosure of Participation or Interest in Primary or Secondary Distribution) and 5260 (Prohibition on Transactions, Publication of Quotations, or Publication of Indications of Interest During Trading Halts) in the Consolidated FINRA Rulebook. Publication is expected in the Federal Register during the week of July 20. (Rel. 34-60330)
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