SEC and UK FSA Discuss Approaches to Global Regulatory Requirements
Securities and Exchange Commission Chairman Mary Schapiro and Hector Sants, Chief Executive of the UK Financial Services Authority (FSA), today announced plans to explore common approaches to reporting and other regulatory requirements for key market participants such as hedge funds and their advisers. In particular, they agreed to identify a common, coherent set of data to collect from hedge fund advisers/managers to help the SEC and FSA identify risks to their regulatory objectives and mandates.
This announcement came out of a meeting of the SEC-FSA Strategic Dialogue, through which SEC and FSA leaders meet periodically to discuss areas of mutual interest. Other issues discussed at the meeting included over-the-counter derivatives markets and central clearing; accounting issues; regulatory reform; credit rating agency oversight; short selling; and corporate governance and compensation practices.
Chairman Schapiro said, "As the regulators of two of the world's major market centers, the SEC and the FSA have a strong interest in collaborating with respect to OTC markets and hedge funds, credit rating agencies and other market participants with cross-border operations. Only through strong cooperation can we achieve coherent oversight of global actors and limit opportunities for playing the regulatory seams. I look forward to continuing this successful dialogue between the SEC and FSA."
Chief Executive Sants said, "The global crisis has underlined how intertwined financial markets and institutions are and regulators around the world have to work together to ensure appropriate oversight. We are all working alongside the Financial Stability Board and other international regulatory committees to drive forward global financial reforms. The strategic dialogue with the SEC is a valuable component of the discussions around these reforms, particularly in areas of joint interest and in identifying potential regulatory gaps."
The SEC and FSA have worked together closely to address the recent financial crisis, both on a bilateral basis as well as in international organizations, such as the International Organization of Securities Commissions. Recently, the SEC and FSA have worked to promote the use of central counterparties (CCPs) for the clearance of credit default swaps and are actively cooperating in the oversight of CCPs.
This was the fourth meeting of the SEC-FSA Strategic Dialogue, which began in June 2006. The purpose of the Dialogue is to engage at senior levels on current matters impacting the U.S. and UK capital markets and areas of future collaboration. (Press Rel. 2009-198)
SEC Announces New Division of Risk, Strategy, and Financial Innovation
Professor Henry Hu Named First Director
Securities and Exchange Commission Chairman Mary L. Schapiro today announced that University of Texas School of Law Professor Henry T. C. Hu has been named Director of the newly-established Division of Risk, Strategy, and Financial Innovation.
The new division combines the Office of Economic Analysis, the Office of Risk Assessment, and other functions to provide the Commission with sophisticated analysis that integrates economic, financial, and legal disciplines. The division's responsibilities cover three broad areas: risk and economic analysis; strategic research; and financial innovation.
"This new division will enhance our capabilities and help identify developing risks and trends in the financial markets," said Chairman Schapiro. "By combining economic, financial, and legal analysis in a single group, this new unit will foster a fresh approach to exchanging ideas and upgrading agency expertise."
Chairman Schapiro continued, "I am pleased Professor Hu agreed to accept this leadership role. His vast understanding of the complexities of the markets will be put to good use on behalf of investors as he leads this new division. I welcome Henry to the SEC, and look forward to benefitting from his insightful counsel."
Professor Hu said, "I am honored that Chairman Schapiro has asked me to be the director of this new division at this seminal time. The derivatives revolution, the rise of hedge funds and institutional investors, technological change, and other factors have transformed both capital markets and corporate governance. I look forward to working with the Commission and to using an interdisciplinary approach that is informed by law and modern finance and economics, as well as developments in real world products and practices on Wall Street and Main Street."
The new division will perform all of the functions previously performed by OEA and ORA, along with the following: (1) strategic and long-term analysis; (2) identifying new developments and trends in financial markets, corporate governance, and systemic risk; (3) making recommendations as to how these new developments and trends affect the Commission's regulatory activities; (4) conducting research and analysis in furtherance and support of the functions of the Commission and its divisions and offices; and (5) providing training on new developments and trends and other matters.
With the creation of the Division of Risk, Strategy, and Financial Innovation, the SEC now has five divisions, including the Division of Corporation Finance, the Division of Enforcement, the Division of Investment Management, and the Division of Trading and Markets.
Professor Hu holds the Allan Shivers Chair in the Law of Banking and Finance at the University of Texas School of Law and has written on bank, derivatives, hedge fund, and mutual fund regulation, corporate governance, global competitiveness of U.S. derivatives markets, model risk, risk management, and swaps and other financial innovations.
More recently, Professor Hu was the lead author on a series of pioneering articles on the "decoupling" of debt and equity, its impact on corporate and debt governance and world systemic risk, and possible disclosure and substantive responses.
Professor Hu holds a B.S. in Molecular Biophysics & Biochemistry, an M.A. in Economics, and a J.D., all from Yale University. (Press Rel. 2009-199)
Securities and Exchange Commission Investor Advisory Committee Open Meeting
The Securities and Exchange Commission Investor Advisory Committee will hold an Open Meeting on Monday, Oct. 5, 2009, in the Auditorium, Room L-002. The meeting will begin at 9:00 a.m. and will be open to the public, with seating on a first-come, first-served basis. Doors will open at 8:30 a.m. Visitors will be subject to security checks.
The agenda for the meeting includes: (i) a presentation by SEC staff of potential Commission initiatives; (ii) description of the composition and purpose of the Committee's subcommittees; (iii) consideration of a Committee recusal policy; (iv) reports from the Committee's subcommittees; and (v) discussion of next steps for the Committee, including regarding SEC resources.
For further information, please contact the Office of the Secretary at (202) 551-5400. (Rel. 33-9064; 34-60672; File No. 265-25-02)
RULES AND RELATED MATTERS
Order Affirming Determination by the Securities Investor Protection Corporation (SIPC)
The Commission issued an order pursuant to Section 3(a)(2)(B) of Securities Investor Protection Act, that SIPC's determination that vPE WertpapierhandelsBank AG is not a member of SIPC is affirmed. (Rel. SIPA-168)
In the Matter of KHF Advisors, LLC
On September 15, the Commission issued an Order Instituting Administrative Proceedings against KHF Advisors, LLC (KHF Advisors), pursuant to Section 203(e) of the Investment Advisers Act of 1940 (Advisers Act) and giving notice of a hearing to determine what, if any, remedial action is appropriate against it.
The Division of Enforcement (Division) alleges in the Order that on Aug. 14, 2009, the United States District Court for the Southern District of West Virginia entered an order enjoining KHF Advisors from violating the antifraud and other provisions of the federal securities laws. [SEC v. Knox H. Fuqua and KHF Advisors, LLC, Civil Action No. 2:06-cv-0666 (S.D. W.Va. Aug. 14, 2009)] The Division further alleges, among other things that, Knox H. Fuqua (Fuqua), a Charleston, West Virginia-based investment adviser, and KHF Advisors, a Commission-registered investment adviser created and controlled by Fuqua, breached their fiduciary duties to their investment advisory clients. Fuqua and KHF Advisors misappropriated their clients' funds, ignored their clients' instructions not to put their funds in high-risk investments, and materially misrepresented the nature and risk of the investments they made with their clients' money. Fuqua and KHF Advisors used their clients' money to pay Fuqua's personal and business expenses and to repay other clients whose money they had wrongfully taken. (See Litigation Release No. 19815.) KHF Advisors failed to appear in federal court and answer the charges. A default judgment was entered against it--on which the Commission's Order, pursuant to Section 203(e) of the Advisers Act, is based--permanently enjoined KHF Advisors from violating Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Exchange Act Rule 10b-5, Section 17(a) of the Securities Act of 1933, and Sections 206(1) and (2) of the Advisers Act. (Rel. IA-2924; File No. 3-13615)
In the Matter of Appalachian Asset Management, Inc.
On September 15, the Commission issued an Order Instituting Administrative Proceedings against Appalachian Asset Management, Inc. (AAM), pursuant to Section 203(e) of the Investment Advisers Act of 1940 (Advisers Act) and giving notice of a hearing to determine what, if any, remedial action is appropriate against it.
The Division of Enforcement (Division) alleges in the Order that AAM is a Commission-registered investment adviser created and controlled by Knox H. Fuqua (Fuqua). Fuqua was a person associated with AAM as that term is defined in Section 202(a)(17) of the Advisers Act. The Division further alleges that the Order against AAM is based upon a United States District Court order enjoining Knox H. Fuqua from violating the antifraud and other provisions of the federal securities laws. [SEC v. Knox H. Fuqua and KHF Advisors, LLC, Civil Action No. 2:06-cv-0666 (S.D. W.Va. Aug. 14, 2009)] The Division alleges in that action, among other things, that Fuqua, a Charleston, West Virginia-based investment adviser, and KHF Advisors, LLC (KHF Advisors), another Commission-registered investment adviser created and controlled by Fuqua, breached their fiduciary duties to their investment advisory clients. Fuqua and KHF Advisors misappropriated their clients' funds, ignored their clients' instructions not to put their funds in high-risk investments, and materially misrepresented the nature and risk of the investments they made with their clients' money. Fuqua and KHF Advisors used their clients' money to pay Fuqua's personal and business expenses and to repay other clients whose money they had wrongfully taken. (See Litigation Release No. 19815) On Aug. 20, 2009, the Commission issued an Order Instituting Administrative Proceedings Pursuant to Section 203(f) of the Investment Advisers Act, Making Findings, and Imposing Remedial Sanctions against Fuqua barring him from association with any investment adviser. (Rel. IA-2925; File No. 3-13616)
In the Matter of Berdj J. Rassam, CPA
On September 15, the Commission issued an order suspending Berdj J. Rassam, CPA, from appearing or practicing before the Commission as an accountant. The Commission suspended Rassam based upon a United States District Court's final judgment enjoining him from violating the antifraud and other provisions of the federal securities laws. [SEC v. Stephen P. Gardner, et al., Civil Action No. 04 CV 2002 (S.D. Cal., Sept. 14, 2009)]. The Commission's complaint in that action alleged, among other things, that Peregrine Systems, Inc. (Peregrine) and its senior officers fraudulently inflated the revenues Peregrine reported in its filings with the Commission and elsewhere. Peregrine improperly recorded millions of dollars of revenue based on non-binding arrangements with resellers. This ultimately caused uncollectible receivables from the non-binding arrangements to swell on Peregrine's balance sheet. The complaint further alleged that Peregrine's management, including Rassam, improperly wrote off the unpaid receivables by falsely characterizing the write-offs as unrelated acquisition costs. (See LR-18919) Rassam consented to the order, which was issued pursuant to Rule 102(e) of the Commission's Rules of Practice, without admitting or denying its findings, except as to the entry of the final judgment against him.
The final judgment of the federal court--on which the Commission's order pursuant to Rule 102(e) of the Commission's Rules of Practice is based--permanently enjoined Rassam from violating Section 17(a) of the Securities Act of 1933 (Securities Act), Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (Exchange Act) and Exchange Act Rules 10b-5 and 13b2-1, and from aiding and abetting violations of Exchange Act Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B), and Exchange Act Rules 12b-20, 13a-1 and 13a-13; and imposed a ten-year officer and director bar on Rassam. (Rel. 34-60676; AAE Rel-3051; File No. 3-13617)
In the Matter of Consolidated Resources Group, Inc.
On September 15, the Commission issued an Order Making Findings and Revoking Registration of Securities Pursuant to Section 12(j) of the Securities Exchange Act of 1934 (Order) against Consolidated Resources Group, Inc. (Consolidated Resources). The Order finds that Consolidated Resources is a Florida corporation and that its common stock has been registered under Section 12(g) of the Securities Exchange Act of 1934 (Exchange Act) since August 1999. Consolidated Resources stock was quoted on the Over-the-Counter Bulletin Board until Oct. 21, 2002, and on the Pink Sheets until Nov. 5, 2008. Consolidated Resources stock currently trades in the over-the-counter markets. The Order also finds that Consolidated Resources failed to comply with Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder by not filing an Annual Report on Form 10-K since the fiscal year ended May 31, 2001 or periodic or quarterly reports on Form 10-Q for any fiscal period subsequent to its fiscal quarter ended Feb. 28, 2002.
Based on the above, the Order revokes the registration of each class of Consolidated Resources' securities registered with the Commission pursuant to Section 12 of the Exchange Act. (Rel. 34-60677; File No. 3-13534)
Court Imposes a $500,000 Civil Penalty Against Defendant Michael Lauer
The Securities and Exchange Commission announced that on Aug. 17, 2009, the United States District Court for the Southern District of Florida entered an order imposing a $500,000 civil penalty against Defendant Michael Lauer. In determining the amount of penalty Lauer should pay, the Court recognized that it had previously ordered Lauer to pay more than $62 million in disgorgement and prejudgment interest and that he is being criminally prosecuted for the same violations he was enjoined from committing in this action.
On Sept. 23, 2008, the Court granted the Commission's motion for summary judgment against Lauer which permanently enjoined him from future violations of Sections 17(a)(1), (2) and (3) of the Securities Act of 1933; Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. On May 7, 2009, the Court ordered Lauer to disgorge $43,688,249 and pay an additional $18,908,558.74 in prejudgment interest. [SEC v. Michael Lauer, et al., Civil Action No. 03-80612-CV-MARRA (S.D. Fla.)] (LR-21211)
SEC Sues Tony E. Morrison and Texas Securities Partners for an Unregistered Oil and Gas Offering Fraud, and Bars Morrison from the Industry
On September 15, the Commission filed a civil action against Tony E. Morrison and Texas Securities Partners LLC (TSP). In its complaint, the Commission alleges that from January 2005 through June 2008, TSP, at Morrison's direction, sold fractional interests in oil and gas offerings. According to the complaint, TSP raised $12.7 million from over 500 investors nationwide by making material misrepresentations regarding past performance, expected returns, and risk. More specifically, the complaint alleges that TSP representatives told investors: (i) a previous offering provided a $30 million return to investors; (ii) the investment would pay out 80% to 120% cash-on-cash return in the first year; (iii) no project had resulted in a dry hole; and (iv) the investment was a "sure thing." The complaint further alleges that contrary to these statements, none of TSP's offerings returned investor principal or profit and three of the wells resulted in dry holes. In addition, the complaint alleges that TSP's offerings were not registered with the Commission and were not otherwise exempt from registration.
Without admitting or denying the allegations in the complaint, Morrison and TSP consented to the entry of a final judgment enjoining them from violating Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and holding them liable, jointly and severally, for disgorgement of $1.2 million plus prejudgment interest of $52,802.44. Based on the defendants' sworn financial statements and supporting documents, the judgment does not order Morrison or TSP to pay civil penalties, and waives payment of disgorgement and prejudgment interest.
Morrison also consented to the entry of an order in a follow-on administrative proceeding barring him from association with any broker or dealer. [SEC v. Tony E. Morrison and Texas Securities Partners LLC, Civil Action No. 4:09-cv-00467 U.S.D.C./Northern District of Texas (Dallas Division)] (LR-21212)
Approval of Proposed Rule Change
The Commission granted approval to a proposed rule change filed by Financial Industry Regulatory Authority, as modified by Amendment No. 1 thereto (SR-FINRA-2009-044), under Section 19(b)(2) of the Securities Exchange Act of 1934 adopting 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 September 14. (Rel. 34-60659)
Immediate Effectiveness of Proposed Rule Change
A proposed rule change filed by NYSE Arca implementing its Schedule of Fees and Charges for Exchange Services (SR-NYSEArca-2009-81) 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 September 14. (Rel. 34-60664)
Proposed Rule Change
A proposed rule change (SR-FINRA-2009-058) has been filed by the Financial Industry Regulatory Authority pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 and Rule 19b-4 thereunder regarding a proposal to adopt FINRA Rule 2232 (Customer Confirmations) in the Consolidated FINRA Rulebook. The proposed rule change would also delete NASD Rule 2230, NASD IM-2110-6 and Incorporated NYSE Rule 409(f). Publication is expected in the Federal Register during the week of September 14. (Rel. 34-60669)
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