SEC News Digest

ENFORCEMENT PROCEEDINGS

In the Matter of Frank S. Laforgia, CPA

On July 31, 2009, the Securities and Exchange Commission issued an Order Instituting Public Administrative and Cease-and-Desist Proceedings pursuant to Sections 4C and 21C of the Securities Exchange Act of 1934 (Exchange Act) and Rule 102(e)(1)(ii) of the Commission's Rules of Practice, Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order (Order) against Frank S. LaForgia, CPA. The Order finds that LaForgia departed from the applicable professional standards and conducted improper audits and reviews of Certified Services, Inc.'s (Certified) financial statements for the years ended December 31, 2002 and December 31, 2003 and the first three quarters of 2004. The Order finds that LaForgia was a cause of Certified's violations of Sections 10(b), 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1 and 13a-13 thereunder, and engaged in improper professional conduct within the meaning of Rule 102(e)(1)(ii) of the Commission's Rules of Practice.

Based on the above, the Order requires LaForgia to cease and desist from committing or causing any violations and any future violations of Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder; and from causing any violations and any future violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act, and Rules 12b-20, 13a-1 and 13a-13 promulgated thereunder and denies him the privilege of appearing or practicing before the Commission as an accountant, with a right to reapply after five years from the date of the Order, based on his improper professional conduct within the meaning of Rule 102(e)(1)(ii). LaForgia consented to the issuance of the Order without admitting or denying any of the findings in the Order except as to the Commission's jurisdiction over him and the subject matter of the Proceedings. (Rel. 34-60415; AAE Rel. 3027; File No. 3-13567)

SEC Charges Take-Two's Former General Counsel and Former Controller/Chief Accounting Officer with Stock Option Backdating

The Securities and Exchange Commission today announced the filing of a civil action against Kenneth Selterman and Patti Tay, the former General Counsel and former Controller/ Chief Accounting Officer, respectively, of video game maker Take-Two Interactive Software, Inc. (Take-Two) with stock option backdating. The SEC's complaint alleges that Tay and Selterman enriched themselves and others by knowingly or recklessly allowing Take-Two's former Chairman/CEO Ryan Brant to backdate Take-Two's stock option grants. The scheme involved granting backdated, undisclosed "in the money" stock options that coincided with dates of historically low annual and quarterly closing prices for Take-Two's common stock. The complaint alleges that Take-Two granted backdated stock options to senior officers, directors, and key employees without complying with its own stock option plans, and generally, without the Board or a committee thereof approving the grant dates and exercise prices. Take-Two also did not record or disclose the compensation expenses it incurred as a result of the "in-the-money" portions of the option grants. Tay's misconduct, according to the complaint, occurred from at least as early as 1998, while Selterman's misconduct occurred from at least as early as 2002.

The SEC's complaint, filed in federal court in the Southern District of New York, also alleges, among other things, that Tay and Selterman:

• knew, or were reckless in not knowing, that exercise prices for stock options had been picked with hindsight;


• created company records that falsely indicated that stock option grants had occurred on earlier dates when Take-Two's stock price had been at a low;


• knew the accounting consequences of granting stock options at exercise prices less than fair market value on the date of the grant; and


• knew or were reckless in not knowing that Take-Two's filings with the SEC were false and misleading because they materially understated Take-Two's compensation expenses and materially overstated its earnings (or understated its losses), and contained materially false and misleading statements pertaining to the true grant dates and exercise prices of options, creating the false and misleading impression that Take-Two granted options in accordance with the terms of its stock option plans.

Tay and Selterman have agreed to settle this matter, without admitting or denying the allegations of the SEC's complaint. Tay and Selterman consented to orders permanently enjoining them from violating the antifraud provisions of Section 10(b) of the Exchange Act and Rule 10b-5, the internal controls and books and records provisions of Section 13(b)(5) of the Exchange Act and Exchange Act Rule 13b2-1; the misrepresentations to auditors provision of Exchange Act Rule 13b2-2; and the reporting provisions of Section 16(a) of the Exchange Act and Rule 16a-3; and from aiding and abetting Take-Two's violations of the Exchange Act's reporting, books and records, internal controls, and proxy solicitation provisions. Tay and Selterman agreed to permanent bars from serving as officers or directors of any issuer that has a class of securities registered with the SEC or that is required to file reports with the SEC. Tay and Selterman will each pay a civil penalty of $125,000. Selterman will also pay disgorgement of $363,185 plus prejudgment interest of $111,115, for a total of $474,300, representing the "in-the-money" benefit he obtained from exercising his backdated options.

In addition, as part of the settlements, and following the entry of the proposed final judgments, Tay and Selterman, without admitting or denying the Commission's findings, consented to the entry of administrative orders pursuant to Rule 102(e)(3) of the Commission's Rules of Practice permanently suspending them from appearing or practicing before the SEC as an accountant and an attorney, respectively.

The settlements are subject to the approval of the United States District Court for the Southern District of New York.

The SEC previously settled with former Chief Executive Officer and Chairman Ryan Brant for his alleged role as the architect of the fraudulent options backdating scheme. SEC v. Ryan Ashley Brant, Civil Action No. 1:07 CV 1075 (DLC) (S.D.N.Y. 2007) (filed February 14, 2007), Litigation Release No. 20003. The SEC also previously settled with Take-Two with respect to the alleged options backdating scheme. SEC v. Take-Two Interactive Software, Inc., Civil Action No. 1:09-CV-03113 (S.D.N.Y. 2009) (filed April 1, 2009), Litigation Release No. 20982.

The SEC acknowledges the assistance of the New York County District Attorney's Office, which conducted a separate, parallel investigation. [SEC v. Kenneth Selterman and Patti Tay, Civil Action No. 1:09-CV-6813 (S.D.N.Y.)] (LR-21163; AAE Rel. 3028)

SEC Charges Bank of America for Failing to Disclose Merrill Lynch Bonus Payments

The Securities and Exchange Commission today charged Bank of America Corporation for misleading investors about billions of dollars in bonuses that were being paid to Merrill Lynch & Co. executives at the time of its $50 billion acquisition of the firm. Bank of America agreed to settle the SEC's charges and pay a penalty of $33 million.

The SEC alleges that in proxy materials soliciting the votes of shareholders on the proposed acquisition of Merrill, Bank of America stated that Merrill had agreed that it would not pay year-end performance bonuses or other discretionary compensation to its executives prior to the closing of the merger without Bank of America's consent. In fact, Bank of America had already contractually authorized Merrill to pay up to $5.8 billion in discretionary bonuses to Merrill executives for 2008. According to the SEC's complaint, the disclosures in the proxy statement were rendered materially false and misleading by the existence of the prior undisclosed agreement allowing Merrill to pay billions of dollars in bonuses for 2008.

The SEC's complaint, filed in the U.S. District Court for the Southern District of New York, alleges that Bank of America represented in the merger agreement that Merrill had agreed not to pay any bonuses to its executives before the merger closed, except as set forth in a schedule. Unbeknownst to shareholders, the schedule was already in place weeks before the proxy statement was filed with the SEC and disseminated to shareholders. Under the schedule, Bank of America had agreed that Merrill could pay up to $5.8 billion, or nearly 12 percent of the $50 billion merger consideration, in discretionary bonuses to its executives. The merger agreement was included as an appendix and summarized in the joint proxy statement that was distributed to all 283,000 shareholders of both companies. But Bank of America's agreement to allow Merrill to pay these discretionary bonuses was in a separate document that was omitted from the proxy statement and whose contents were never disclosed before the shareholders' vote on the merger.

In settling the SEC's charges without admitting or denying the allegations, Bank of America consented to the entry of a judgment that permanently enjoins Bank of America from violating the proxy solicitation rules - Section 14(a) of the Exchange Act of 1934 and Rule 14a-9 - and orders Bank of America to pay the financial penalty. The settlement is subject to court approval.

The SEC acknowledges the assistance of the U.S. Attorney's Offices for the Southern District of New York and the Western District of North Carolina, the Federal Bureau of Investigations, and the Office of the Special Inspector General for the Troubled Asset Relief Program. The SEC's investigation is ongoing. [SEC v. Bank of America Corp., Case No. 09 civ 6829 (S.D.N.Y.)] (LR-21164)

SELF-REGULATORY ORGANIZATIONS

Immediate Effectiveness of Proposed Rule Changes

A proposed rule change filed by the New York Stock Exchange extending the operative date of NYSE Rule 92(c)(3) from July 31, 2009 to December 31, 2009 (SR-NYSE-2009-73) 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 August 3. (Rel. 34-60396)

A proposed rule change filed by the NYSE Amex extending the operative date of NYSE Amex Equities Rule 92(c)(3) from July 31, 2009 to December 31, 2009 (SR-NYSEAmex-2009-48) 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 August 3. (Rel. 34-60397)

A proposed rule change filed by NYSE Amex (NYSEAmex-2009-47) amending NYSE Amex Disciplinary Rule 476A to add Rule 104(a)(1)(A) - NYSE Amex Equities to its "List of Exchange Rule Violations and Fines Applicable Thereto" 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 August 3. (Rel. 34-60398)

A proposed rule change filed by New York Stock Exchange (SR-NYSE-2009-72) amending NYSE Rule 476A to add Rule 104(a)(1)(A) to its "List of Exchange Rule Violations and Fines Applicable Thereto Pursuant to Rule 476A" 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 August 3. (Rel. 34-60399)

A proposed rule change filed by the Municipal Securities Rulemaking Board relating to amendments to Rule A-3, on Membership on the Board, Rule A-4, on Meetings of the Board, Rule A-5, on Officers and Employees of the Board, and Rule A-6, on Committees of the Board (SR-MSRB-2009-11) 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 August 3. (Rel. 34-60408)

JOINT INDUSTRY PLAN RELEASES

Order Approving the National Market System Plan Relating to Options Order Protection and Locked and Crossed Markets

Pursuant to Section 11A(a)(3)(B) of the Securities Exchange Act of 1934 and Rule 608 thereunder, the Commission approved the proposed Options Order Protection and Locked/Crossed Market Plan submitted by the Chicago Board Options Exchange, International Securities Exchange, The NASDAQ Stock Market, NASDAQ OMX BX, NASDAQ OMX PHLX, NYSE Amex, and NYSE Arca (File No. 4-546). Publication is expected in the Federal Register during the week of August 3. (Rel. 34-60405)

Order Declaring Effective a Proposed Plan for the Allocation of Regulatory Responsibilities Among the Financial Industry Regulatory Authority, Inc., New York Stock Exchange LLC, NYSE Regulation, Inc. and NYSE Amex LLC

The Commission declared effective a proposed plan for allocation of regulatory responsibilities pursuant to Rule 17d-2 under the Securities Exchange Act of 1934 (File No. 4-587) submitted by the Financial Industry Regulatory Authority, New York Stock Exchange, NYSE Regulation, and NYSE Amex. Publication is expected in the Federal Register during the week of August 3. (Rel. 34-60409)

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