Chairman Schapiro Issues Open Letter to Broker-Dealer CEOs
SEC Chairman Mary L. Schapiro today issued an open letter to remind broker-dealer chief executive officers of their supervisory responsibilities following reports that special recruitment programs at some firms are premised on enhanced compensation arrangements.
The letter to broker-dealer CEOs states that some enhanced compensation arrangements could induce brokers to engage in conduct that is not in investors' best interest and reminds CEOs that they have an obligation to police for such conflicts. In addition, the letter reminds CEOs that, as their firms grow, their supervisory and compliance infrastructures should retain sufficient size and capacity.
The letter is available at http://www.sec.gov/news/press/2009/2009-189-letter.pdf. (Press Rel. 2009-189)
Securities and Exchange Commission Orders Hearing on Registration Revocation Against Five Public Companies for Failure to Make Required Periodic Filings
On August 28, the Commission instituted public administrative proceedings to determine whether to revoke or suspend for a period not exceeding twelve months the registrations of each class of the securities of five companies for failure to make required periodic filings with the Commission:
In this Order, the Division of Enforcement (Division) alleges that the five 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 Administrative Law 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 or 13a-16 thereunder, are true. The Administrative Law 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. 34-60583; File No. 3-13605)
In the Matter of Steven E. Tennies
On August 28, the Commission issued an Order Instituting Administrative Proceedings Pursuant to Section 203(f) of the Investment Advisers Act of 1940, Making Findings and Imposing Remedial Sanctions (Order) against Steven E. Tennies. The Order finds that Tennies provided investment advice to clients from 2003 to the present. The Order further finds that a final judgment was entered by consent against Tennies in a civil action in the United States District Court for the District of Idaho (SEC v. Tennies, No. 3:09-cv-00370-EJL (D. Idaho July 30, 2009)). That judgment permanently enjoins Tennies from future violations of the antifraud and registration provisions of the federal securities laws. The Commission's complaint alleged that Tennies, in connection with the sale of limited partnership interests, misappropriated investor funds for personal use, falsely stated to investors that their funds were invested, sent out false account statements indicating that investor funds were fully invested and earning returns, and otherwise engaged in a variety of conduct which operated as a fraud and deceit on investors. The complaint also finds that Tennies sold unregistered securities.
Based on the above, the Order bars Steven E. Tennies from association with any investment adviser. Tennies consented to the issuance of the Order without admitting or denying any of the findings except as to the entry of the final judgment. (Rel. IA-2921; File No. 3-13604)
In the Matter of RDM Sports Group, Inc.
An Administrative Law Judge has issued an Order Making Findings and Revoking Registrations by Default as to Ten Respondents (Default Order) in RDM Sports Group, Inc., Administrative Proceeding No. 3-13556. The Order Instituting Proceedings (OIP) alleged that twelve Respondents failed repeatedly to file required annual and quarterly reports while their securities were registered with the Securities and Exchange Commission (Commission). The Default Order finds these allegations to be true as to ten Respondents. It revokes the registrations of each class of registered securities of RDM Sports Group, Inc., Real Del Monte Mining Corp., Recoton Corp., Red Hot Concepts, Inc., RedHand International, Inc. (n/k/a African Diamond Co, Inc. or Coal Corp.), Redlaw Industries, Inc., Republic Resources, Inc., Rhino Enterprises Group, Inc. (n/k/a Physicians Adult Daycare, Inc.), Ridgeview, Inc., and Rocky Mount Undergarment Co., Inc., pursuant to Section 12(j) of the Securities Exchange Act of 1934.
The Commission has previously accepted an Offer of Settlement from Riverside Group, Inc., the eleventh Respondent named in the OIP.
The proceeding remains pending as to Reward Enterprises, Inc., the twelfth Respondent named in the OIP. (Rel. 34-60588; File No. 3-13556)
In the Matter of OOO CentreInvest Securities
An Administrative Law Judge has issued an Initial Decision as to OOO CentreInvest Securities in CentreInvest, Inc., Administrative Proceeding No. 3-13304. The Securities and Exchange Commission issued its Order Instituting Proceedings (OIP) on Dec. 8, 2008, alleging that Respondent OOO CentreInvest Securities, a Moscow-based broker-dealer, directly and through U.S. and foreign affiliates, solicited institutional investors in the U.S. to purchase and sell thinly-traded stocks of Russian companies, without registering as a broker-dealer in violation of Section 15(a) of the Securities Exchange Act of 1934 (Exchange Act).
Five other Respondents were named in the OIP for their roles in aiding and abetting OOO CentreInvest Securities' violations and for separate, but related, violations of the Exchange Act. The proceeding has ended as to the other Respondents. CentreInvest, Inc., Exchange Act Release Nos. 60413 (July 31, 2009), 60450 (Aug. 5, 2009), and 60485 (Aug. 12, 2009).
The Initial Decision finds the allegations of the OIP made against OOO CentreInvest Securities to be true. In the public interest, the Initial Decision orders that OOO CentreInvest Securities cease and desist from committing or causing any violations, or any future violations, of Section 15(a) of the Exchange Act, bars it from association with any broker or dealer, orders the disgorgement of ill-gotten gains of $2,400,000, plus prejudgment interest, and orders second-tier civil monetary penalties of $1,275,000. (Initial Decision No. 387; File No. 3-13304)
SEC Sues Former Sales Executive for Foreign Bribery
On August 28, the Securities and Exchange Commission filed a settled enforcement action in the United States District Court for the District of Columbia against Oscar H. Meza, formerly the Director of Asia-Pacific Sales for Faro Technologies, Inc. (Faro), a software development and manufacturing company. The Commission's complaint alleges that Meza authorized bribery payments to employees of Chinese state-owned companies in order to obtain contracts, and that in order to conceal the bribes Meza instructed that account entries be altered. The Commission charged Meza with violations of the anti-bribery, books and records and internal control provisions of the Foreign Corrupt Practices Act (FCPA), and with aiding and abetting Faro's violations of the anti-bribery, books and records and internal control provisions of the FCPA.
The Commission's complaint alleges that beginning in 2004, Meza authorized a former employee of Faro's subsidiary, Faro Shanghai Co., Ltd. (Faro-China), to make the improper payments. The complaint alleges that Meza's actions resulted in Faro-China's payment of $444,492 in bribes during the period 2004 through 2006, generating approximately $4.5 million in sales and approximately $1.4 million in net profit.
Without admitting or denying the allegations in the complaint, Meza has consented to the entry of a final judgment permanently enjoining him from violating Sections 30A and 13(b)(5) of the Securities Exchange Act of 1934 (Exchange Act) and Exchange Act Rule 13b2-1, and from aiding and abetting violations of Sections 30A, 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act. The final judgment also orders that Meza pay a $30,000 civil penalty, as well as $26,707 in disgorgement and prejudgment interest.
The Commission previously instituted a settled administrative proceeding against Faro in connection with the bribery payments. See Exchange Act Release No. 57933 (June 5, 2008); Accounting and Auditing Enforcement Release No. 2836.
The Commission acknowledges the assistance of the United States Department of Justice, Fraud Section. [SEC v. Oscar H. Meza, Civil Action No. 1:09-CV-01648 (D.D.C.)] (LR-21190; AAE Rel. 3041)
SEC Charges Northern California Man for Investment Scheme Targeting Religious Community
The Securities and Exchange Commission on Friday charged David A. Souza and his company, D.A. Souza Investments, LLC for conducting a fraudulent investment scheme that targeted a Redding, California church community. In a nine-month period during 2007 and 2008, according to the SEC's complaint, Souza raised more than $1 million from approximately 28 investors by touting his supposedly phenomenal skill in investing. Souza allegedly took advantage of investors' trust by appealing to their religious faith with slogans such as "Where Business Is Moral and the Miraculous Is Routine."
In reality, the SEC's complaint alleges, Souza never invested any of the money he received from investors. Instead, he diverted most of the investors' money to expenditures designed to create the false appearance of a successful business operation. Souza used another portion of the money to pay certain investors fictitious high returns in the style of a Ponzi scheme, and he used the remainder to pay his personal living expenses.
The SEC's complaint, filed in the U.S. District Court for the Eastern District of California in Sacramento, alleges that Souza told investors that their money would be pooled together and invested in stocks or business ventures. Souza convinced individuals to invest with him by professing that he had achieved remarkable rates of return on his past investments. According to the complaint, one prospectus Souza distributed showed purported annualized returns of 158 percent. The supposed returns were entirely fictional, as Souza had no prior investment experience, and he never invested any of the money he received.
The complaint further alleges that rather than investing the money as he had represented to investors, Souza spent it on items that were neither disclosed to nor authorized by investors. For example, Souza spent approximately $100,000 to rent office space and to supply it with luxurious furniture and computers; he also used additional investor funds for his personal living expenses, including dental and optical expenses, clothing, and groceries. The complaint further alleges that Souza distributed approximately $230,000 back to certain investors, much of it as purported dividend payments as in a Ponzi scheme. Seeing these purported "returns" caused investors to give Souza additional funds, the complaint charges.
The SEC's complaint charges Souza and D.A. Souza Investments, LLC with violations of the antifraud and registration provisions of the federal securities laws under 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 as to Souza, Sections 206(1), 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder. The complaint seeks civil injunctive relief and disgorgement of ill-gotten gains from each defendant, and civil penalties from Souza. [SEC v. David A. Souza and D.A. Souza Investments, LLC, Case No. 2:09-cv-02421-FCD-KJM, E.D. Cal.] (LR-21191)
Immediate Effectiveness of Proposed Rule Change
A proposed rule change (SR-Phlx-2009-72) filed by NASDAQ OMX PHLX relating to the Option Floor Broker Subsidy and other clarifying amendments to the fee schedule 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 August 31. (Rel. 34-60578)
Approval of Proposed Rule Change
The Commission approved a proposed rule change (SR-ISE-2009-35) filed by the International Securities Exchange under Rule 19b-4 of the Securities Exchange Act of 1934 Relating to Qualified Contingent Cross Orders. Publication is expected in the Federal Register during the week of August 31. (Rel. 34-60584)
JOINT INDUSTRY PLAN RELEASES
Order Approving Amendments to the National Market System Plan for the Purpose of Creating and Operating an Intermarket Option Linkage
Pursuant to Section 11A of the Securities Exchange Act of 1934 and Rule 608 of Regulation NMS thereunder, the Commission approved amendments to withdraw from the Plan for the Purpose of Creating and Operating an Intermarket Option Linkage 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. Publication is expected in the Federal Register during the week of August 31. (Rel. 34-60582)
SECURITIES ACT REGISTRATIONS
RECENT 8K FILINGS