SEC Names Daniel L. Goelzer Acting Chairman of the PCAOB
The Securities and Exchange Commission today announced it has appointed Daniel L. Goelzer as Acting Chairman for the Public Company Accounting Oversight Board effective August 1, 2009.
The PCAOB, which is subject to oversight by the Commission, was created by the Sarbanes-Oxley Act of 2002 and is responsible for supervising accounting firms that audit public companies. Mr. Goelzer is a founding and current member of the PCAOB Board, where he has served for the past six years.
"Daniel Goelzer has demonstrated the leadership, ability and experience necessary to oversee the continued progress of this important organization," said SEC Chairman Mary Schapiro. "During this interim period, I look forward to working with him, his colleagues, and the PCAOB staff as they continue to fulfill their mission of protecting investors."
"I would also like to thank Chairman Mark Olson for his service these past three years," Chairman Schapiro added. "During his tenure at the PCAOB, Chairman Olson has helped to significantly improve the quality of audits for the protection of investors."
Mr. Goelzer has served as General Counsel of the SEC and has held the offices of Executive Assistant to the SEC Chairman and Associate General Counsel in the Office of the General Counsel.
Mr. Goelzer was a partner in the Washington, D.C. office of the law firm of Baker & McKenzie, where he practiced in securities and corporate law and specialized in matters involving the SEC. He served as a law clerk to Judge Thomas E. Fairchild of the U.S. Court of Appeals for the Seventh Circuit. Earlier in his career, he worked as an auditor in the Milwaukee office of Deloitte & Touche.
Mr. Goelzer is a native of Milwaukee and received a B.B.A. in Accounting from the University of Wisconsin, a J.D. from the University of Wisconsin School of Law, and an L.L.M. from the National Law Center of George Washington University.
(Press Rel. 2009-171)
SEC Takes Steps to Curtail Abusive Short Sales and Increase Market Transparency
The Securities and Exchange Commission today announced several actions that would protect against abusive short sales and make more short sale information available to the public.
"Today's actions demonstrate the Commission's determination to address short selling abuses while at the same time increasing public disclosure of short selling activities that affect our markets," said SEC Chairman Mary Schapiro.
First, the Commission made permanent an interim final temporary rule, Rule 204T, that seeks to reduce the potential for abusive "naked" short selling in the securities market. The new rule, Rule 204, requires broker-dealers to promptly purchase or borrow securities to deliver on a short sale. The temporary rule, approved by the SEC in the fall of 2008, was set to expire on July 31.
Second, the Commission and its staff are working together with several self-regulatory organizations (SRO) to make short sale volume and transaction data available through the SRO Web sites. This effort will result in a substantial increase over the amount of information presently required by another temporary rule, known as Temporary 10a-3T. That rule, which will expire on August 1, applies only to certain institutional money managers and does not require public disclosure.
Apart from these measures, the Commission is continuing to actively consider proposals on a short sale price test and circuit breaker restrictions.
Third, the Commission intends to hold a public roundtable on September 30 to discuss securities lending, pre-borrowing, and possible additional short sale disclosures. The roundtable will consider, among other topics, the potential impact of a program requiring short sellers to pre-borrow their securities, possibly on a pilot basis, and adding a short sale indicator to the tapes to which transactions are reported for exchange-listed securities.
Short selling often can play an important role in the market for a variety of reasons, including contributing to efficient price discovery, mitigating market bubbles, increasing market liquidity, promoting capital formation, facilitating hedging and other risk management activities, and importantly, limiting upward market manipulations. There are, however, circumstances in which short selling can be used as a tool to manipulate the market.
"Naked" Short Sales: In a "naked" short sale the investor sells shares "short" without first having borrowed them. Such a transaction is permitted because there is no legal requirement that a short seller actually borrow the shares before effecting a short sale.
But, before effecting a short sale, Rule 204T requires that the broker-dealer, as opposed to the seller, "locate" an entity that the broker reasonably believes can deliver the shares within three days after the trade - what's known as T+3. Also, if reasonable, a broker-dealer may rely on a short seller's assurance that the short seller has located his or her own lender that can deliver shares in time for settlement.
"Fails-to-deliver": If an investor or its broker-dealer does not deliver shares by T+3, a "failure to deliver" occurs. Where an investor or its broker-dealer neither locates nor delivers shares, a "naked" short sale has occurred.
A "fail to deliver" can occur for legitimate reasons, such as mechanical errors or processing delays. Further, a "fail to deliver" could occur as a result of a long sale - that is the typical buy-sell transaction - as well as a short sale.
"Fails to deliver", such as fails resulting from potentially abusive "naked" short selling, may have a negative effect on shareholders, potentially depriving them of the benefits of ownership such as voting and lending. They also may create a misleading impression of the market for an issuer's securities.
Adopting Regulation SHO: Due to its concerns regarding persistent "fails to deliver" and potentially abusive "naked" short selling, the Commission adopted Regulation SHO, which became effective in early 2005. This regulation imposes, among other things, the requirement that broker-dealers locate a source of borrowable shares prior to selling short.
In addition, it requires that firms that clear and settle trades must purchase shares to close out these "fails to deliver" within a certain time frame, 13 days. This "close-out" requirement only applies to certain equity securities with large and persistent "fails to deliver," known as threshold securities.
The requirement included two major exceptions: the so-called "grandfather" and "options market maker" exceptions. Both of these exceptions provided that certain "fails to deliver" in threshold securities never had to be closed out. The Commission eliminated both exceptions in August 2007 and September 2008, respectively.
Making Permanent A Rule to Curtail Naked Short Selling
Adopting Rule 204: The Commission has made permanent a temporary rule that was approved in 2008 in response to continuing concerns regarding "fails to deliver" and potentially abusive "naked" short selling. In particular, temporary Rule 204T made it a violation of Regulation SHO and imposes penalties if a clearing firm:
Cutting Down Failures to Deliver: An analysis conducted by the SEC's Office of Economic Analysis, which followed the adoption of the close-out requirement of Rule 204T and the elimination of the "options market maker" exception, showed the number of "fails" declined significantly.
For example, since the fall of 2008, fails to deliver in all equity securities has decreased by approximately 57 percent and the average daily number of threshold list securities has declined from a high of approximately 582 securities in July 2008 to 63 in March 2009.
Due to the success of these measures in furthering the Commission's goals of reducing fails to deliver and addressing potentially abusive "naked" short selling, the Commission has made permanent the requirements of Rule 204T with only limited modifications to address commenters' operational concerns.
Increasing Transparency Around Short Sales
In the fall of 2008, the Commission also adopted a short sale reporting interim rule, Rule 10a-3T. The rule requires certain market participants to provide short sale and short position information to the Commission.
The Commission made the rule temporary so that it could evaluate whether the benefits from the data justified the costs associated with the rule.
Instead of renewing the rule, the Commission and its staff, together with SROs, are working to substantially increase the public availability of short sale-related information through a series of other actions. These actions should provide a wealth of information to the Commission, other regulators, investors, analysts, academics, and the media.
Specifically, the Commission and its staff are working together with several SROs in the following areas:
Hosting a Roundtable
Finally, the Commission also is examining whether additional measures are needed to further enhance market quality and transparency, as well as address short selling abuses.
As part of its examination, the Commission intends to hold a public roundtable on Sept. 30, 2009, to solicit the views of investors, issuers, financial services firms, self-regulatory organizations and the academic community regarding a variety of trading and market related practices. The roundtable will focus on issues related to securities lending, pre-borrowing, and possible additional short sale disclosures.
The roundtable panelists will consider, among other things, additional means to foster transparency, such as adding a short sale indicator to the tapes to which transactions are reported for exchange-listed securities, and requiring public disclosure of individual large short positions. Panelists will also consider whether it would be appropriate to impose a pre-borrow or enhanced "locate" requirement on short sellers, potentially on a pilot basis. Additionally, panelists will discuss issues related to securities lending such as compensation arrangements, disclosure practices, and methods of collateral and cash-reinvestment.
(Press Rel. 2009-172)
SEC Charges California Sales Agent In Connection With $45 Million Ponzi-Like Scheme
Today, the Commission filed a civil injunctive action against Darryl Lamonth Clark in the Northern District of California for his participation in a fraudulent ponzi-like scheme perpetrated by Terchi "Nelson" Liao and two entities Liao controlled, AOB Commerce, Inc. and AOB Asia Fund I, LLC (collectively, AOB).
The Commission alleges that AOB and several related entities raised more than $45 million from hundreds of investors in several states from mid-2004 to July 2007, through the unregistered offering and sale of promissory notes that in many cases paid interest of up to 5.5% per month. The Commission's complaint alleges that, although AOB purported to be in the business of making loans to companies in Asia, investor proceeds were used primarily to pay principal and interest on the notes, pay commissions to sales agents, and make undisclosed loans to entities affiliated with AOB. The Commission brought the scheme to a halt in July 2007, with the filing of an emergency action and the appointment of a receiver. [SEC v. AOB Commerce, Inc., et al., Civil Action No. CV-07-4507 CAS (JCx) (C.D. Cal. filed July 12, 2007)].
The Commission alleges that Clark became an AOB sales agent in July 2004, and that he managed AOB's San Jose, California branch office. The Commission further alleges that Clark failed to conduct adequate due diligence, helped create a misleading brochure given to investors, and failed to register or become associated with a registered broker-dealer at the time that he participated in the sale of notes. The Commission also alleges that Clark received payments totaling at least $800,000 from AOB during this time period.
The complaint alleges that Clark violated 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, and Rule 10b-5 thereunder, and seeks permanent injunctive relief, disgorgement, and a civil penalty.
[SEC v. Darryl Lamonth Clark, United States District Court for the Northern District of California, Case No. C09-03423 RS (N.D. Cal. July 27, 2009)] (LR-21153)
INVESTMENT COMPANY ACT RELEASES
WisdomTree Asset Management, Inc. And WisdomTree Trust
An order has been issued on an application filed by WisdomTree Asset Management, Inc. and WisdomTree Trust under Section 6(c) of the Investment Company Act of 1940 (Act) for an exemption from Rule 12d1-2(a) under the Act. The order permits funds of funds relying on Rule 12d1-2 under the Act to invest in certain financial instruments. (Rel. IC-28836 - July 24)
Immediate Effectiveness of Proposed Rule Changes
A proposed rule change filed by the NASDAQ Stock Market to amend NASDAQ Rule 4751 to provide system functionality that will cancel any portion of most types of unpriced orders (SR-NASDAQ-2009-070) 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 27. (Rel. 34-60371)
A proposed rule change (SR-NASDAQ-2009-069) filed by the NASDAQ Stock Market to extend the temporary suspension of the continued listing requirements related to bid price and market value of publicly held shares for listing on the Nasdaq Stock Market through July 31, 2009 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 27. (Rel. 34-60374)
A proposed rule change filed by the Chicago Board Options Exchange amending its CBOE Stock Exchange Fees Schedule to establish facility fees (SR-CBOE-2009-044) 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 27. (Rel. 34-60376)
A proposed rule change filed by NASDAQ OMX BX to modify its optional anti-internalization functionality (SR-BX-2009-042) 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 27. (Rel. 34-60383)
Approval of Proposed Rule Change
The Commission approved a proposed rule change (SR-CBOE-2009-038) filed by the Chicago Board Options Exchange under Rule 19b-4 of the Securities Exchange Act of 1934 relating to the CBOE's Complex Order Book. Publication is expected in the Federal Register during the week of July 27. (Rel. 34-60381)
Proposed Rule Changes
The Securities and Exchange Commission has issued an order approving a proposed rule change submitted by Financial Industry Regulatory Authority (SR-FINRA-2009-038) to repeal Incorporated NYSE Rule 134 (Differences and Omissions - Cleared Transactions) and NYSE Rule 440I (Records of Compensation Arrangements - Floor Brokerage) as part of the process to develop the Consolidated FINRA Rulebook. Publication is expected in the Federal Register during the week of July 27. (Rel. 34-60367)
The Chicago Board Options Exchange has filed a proposed rule change (SR-CBOE-2009-047), as modified by Amendment No. 1 thereto, pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 to allow all CBSX Market-Maker types to operate from the CBSX Floor Post. Publication is expected in the Federal Register during the week of July 27. (Rel. 34-60375)
The International Securities Exchange has filed a proposed rule change (SR-ISE-2009-45) related to changes to its Rule 312 in connection with the purchase of equity interests by International Securities Exchange Holdings, Inc. in Optifreeze, LLC pursuant to Rule 19b-4 under the Securities Exchange Act of 1934. Publication of the proposal is expected in the Federal Register during the week of July 27. (Rel. 34-60382)
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