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U.S. Securities and Exchange Commission

SEC News Digest

Issue 2009-186
September 28, 2009


SEC Announces Panelists for Securities Lending and Short Sale Roundtable

On September 25, the Securities and Exchange Commission announced the panelists for its September 29 and September 30 roundtable in Washington D.C. to discuss securities lending and short sale issues.

Spotlight on Short Sales

The roundtable will begin at 9:30 a.m. on both days with opening remarks from SEC Chairman Mary L. Schapiro.

“Securities lending was once thought to be a way to earn a few extra points of return, with little or no risk,” said Chairman Schapiro.  “Events of last year reveal the risk was present.  As a result, we need to consider ways to enhance investor-oriented oversight of this multi-trillion dollar market.”

Chairman Schapiro added, “We also must focus on a flip-side of securities lending – short selling.  That’s why the roundtable will also examine potential short sale pre-borrow and hard locate requirements and short sale disclosures.”

Panel topics will include discussions of securities lending practices, possible short sale pre-borrowing requirements and additional short sale disclosures.

Roundtable participants will include representatives of corporate issuers, financial services firms, beneficial owner lenders, lending agents, borrowers of securities, self-regulatory organizations, international regulators and the academic community.

The roundtable will be held at the SEC’s headquarters at 100 F Street NE in Washington, D.C., and will be open to the public with seating on a first-come, first-served basis.  The roundtable also will be webcast on the SEC’s Web site.

For additional information about the roundtable, contact the SEC’s Division of Trading and Markets at (202) 551-5720.

Agenda and Panelists

September 29, 2009

9:30-9:40 a.m. — Opening Remarks from SEC Chairman Mary L. Schapiro

9:40-10:50 a.m. — Panel 1
Overview of Securities Lending: Participants; Process; Benefits and Pitfalls

  • Jerry Davis, New Orleans Municipal Employees’ Retirement System
  • David Downey, OneChicago
  • Irving Klubeck, Pershing LLC
  • William Pridmore, William F. Pridmore, Ltd.
  • Professor Adam Reed, University of North Carolina

10:50-11 a.m. — Break

11 a.m.-12:30 p.m. — Panel 2
Securities Lending and Investor Protection Concerns: Cash Collateral Reinvestment; Default; Lending Agent Compensation and Fee Splits; Proxy Voting

  • Patrick Avitabile, Citigroup
  • Ed Blount, Center for the Study of Financial Market Evolution
  • Karen Dunn Kelley, Invesco
  • Bruce Leto, Stradley Ronon Stevens and Young, LLP
  • Kathy Rulong, Bank of New York Mellon Corporation
  • Julia Short, RidgeWorth Investments
  • Christianna Wood, Internat'l Corporate Governance Network

12:30-1:30 p.m. — Lunch Break

1:30-2:40 p.m. — Panel 3
Improving Securities Lending for the Benefit of Investors: Transparency; Electronic Platforms; Central Counterparties; Accountability

  • Gregory DePetris, Quadriserv, Inc.
  • Christine Donovan, Brown Brothers Harriman
  • Aaron Gerdeman, Sungard
  • Chris Jaynes, eSecLending
  • Mike McAuley, State Street Corporation
  • Jeff Petro, Federated
  • Shawn Sullivan, Credit Suisse

2:40-2:50 p.m. — Break

2:50-3:55 p.m. — Panel 4
The Future of Securities Lending and Potential Regulatory Solutions: Market Evolution; SEC's Role; Assessing any Regulatory Gaps

  • Mark Faulkner, Data Explorers
  • Richard Ketchum, FINRA
  • John Nagel, Citadel Investment Group, L.L.C.
  • Leslie Nelson, Goldman Sachs

3:55-4 p.m. — Closing Remarks from SEC Chairman Mary L. Schapiro

September 30, 2009

9:30-9:40 a.m. — Opening Remarks from SEC Chairman Mary L. Schapiro

9:40-11 a.m. — Panel 1
Controls on "Naked" Short Selling: Examination of Pre-Borrow and Hard Locate Requirements

  • William Conley, Goldman Sachs
  • Peter Driscoll, Security Traders Association
  • Dr. Frank Hatheway, NASDAQ OMX Group
  • William Hodash, The Depository Trust & Clearing Corporation
  • Paul Lynch, State Street Corporation
  • Michael Mendelson, AQR Capital Management
  • Dennis Nixon, International Bancshares Corporation
  • William O’Brien, Direct Edge
  • Thomas Perna, Quadriserv, Inc.

11-11:10 a.m. — Break

11:10-12:25 p.m. — Panel 2
Making Short Sale Disclosure More Meaningful: Public versus Non-Public Reporting; Consolidated Tape Disclosure; Timeliness of Information

  • Professor James Angel, Georgetown University
  • David Carruthers, Data Explorers
  • Richard Gates, TFS Capital LLC
  • Michael Gitlin, T. Rowe Price
  • Jesse Greene, IBM
  • Joseph Mecane, NYSE Euronext
  • Michael Treip, UK Financial Services Authority

12:25-12:30 p.m. — Closing Remarks from SEC Chairman Mary L. Schapiro

(Press Rel. 2009-207)

Fee Rate Advisory #2 for Fiscal Year 2010

When fiscal year 2010 starts on Oct. 1, 2009, the Securities and Exchange Commission expects to be operating under a continuing resolution that will extend through Oct. 31, 2009.  During this period, fees paid under Section 6(b) of the Securities Act of 1933 and Sections 13(e), 14(g) and 31 of the Securities Exchange Act of 1934 will remain at their current rates.

As previously announced, 30 days after the date of enactment of the Commission’s regular fiscal year 2010 appropriation, the Section 31 fee rate applicable to securities transactions on the exchanges and in the over-the-counter markets will be set at $12.70 per million dollars. The assessment on security futures transactions under Section 31(d) will remain unchanged at $0.0042 for each round turn transaction.

In addition, five days after the date of enactment of the Commission’s regular appropriation, the Section 6(b) fee rate applicable to the registration of securities, the Section 13(e) fee rate applicable to the repurchase of securities, and the Section 14(g) fee rate applicable to proxy solicitations and statements in corporate control transactions will be set at $71.30 per million dollars.

The Division of Trading and Markets Office of Interpretation and Guidance is available for questions relating to Section 31, at (202) 551-5777 or at tradingandmarkets@sec.gov. A copy of the Commission’s April 30, 2009, order regarding fee rates for fiscal year 2010 is available at http://www.sec.gov/rules/other/2009/33-9030.pdf.

The Commission will issue further notices as appropriate to keep the public informed of developments relating to enactment of the Commission’s regular appropriation and the effective dates for the above fee rate changes. These notices will be posted at the SEC’s Web site at http://www.sec.gov. (Press Rel. 2009-209)


Order Pursuant to Section 36 of the Securities Exchange Act of 1934 Extending Temporary Exemptions from Sections 5 and 6 of the Exchange Act for Broker-Dealers and Exchanges Effecting Transactions in Credit Default Swaps

Pursuant to its authority under Section 36 of the Exchange Act, 15 U.S.C. 78mm, the Securities and Exchange Commission is extending a temporary, conditional exemption from Sections 5 and 6 of the Securities Exchange Act of 1934 (Exchange Act), that was granted on Dec. 24, 2008, for an additional period until March 24, 2010. Subject to specified conditions, any exchange that effects or reports transactions in credit default swaps that are not swap agreements as defined in Section 3A of the Exchange Act, and is not otherwise subject to the requirements under Sections 5 and 6 of the Exchange Act and the rules and regulations thereunder, is exempt from the requirement to register as a national securities exchange. In addition, any broker or dealer that effects or reports transactions in non-excluded CDS on such an exchange is exempt from the prohibition on trading activity in Section 5 of the Exchange Act. The exemption is conditioned on an exchange providing notice to the Commission of its reliance on the order, and certain other requirements that generally mirror those applicable to alternative trading systems under Regulation ATS. (Rel. 34-60718)


Securities and Exchange Commission Orders Hearing on Registration Revocation Against Ten Public Companies for Failure to Make Required Periodic Filings

On September 25, 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 ten companies for failure to make required periodic filings with the Commission:

  • Warwick Insurance Managers, Inc.
  • Watermarc Food Management Co.
  • Welcome Home, Inc.
  • Whitehall Limited, Inc.
  • Word-Tronics Corp.
  • Worksafe Industries, Inc.
  • World Commerce Online, Inc.
  • Worldwide Film Funding, Inc.
  • Worldwide Web Networx Corp.
  • Wulf International, Ldt.

In this Order, the Division of Enforcement (Division) alleges that the ten 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 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. 34-60723; File No. 3-13626)

Revocation of Registration of Securities of TVI Corporation

The Securities and Exchange Commission announced the revocation of the registration of the securities of TVI Corporation (TVI), of Glenn Dale, Maryland, on Sept. 28, 2009, pursuant to Section 12(j) of the Securities Exchange Act of 1934 (Exchange Act).

In its Order revoking the registration of securities of TVI registered with the Commission pursuant to Section 12 of the Exchange Act, the Commission found the following:

TVI Corporation (CIK NO. 352079) is a Maryland corporation headquartered in Glenn Dale, Maryland, and its business includes selling emergency response equipment. At all relevant times, TVI’s common stock was registered with the Commission pursuant to Section 12 of the Exchange Act. TVI’s common stock initially was registered under Section 12(g) and traded on the NASDAQ SmallCap Market under the symbol “TVIN,” and then the stock was registered under Section 12(b) when the NASDAQ became an “exchange.” On April 1, 2009, TVI filed a voluntary Chapter 11 bankruptcy petition. In July 2009, TVI’s stock was delisted from the NASDAQ SmallCap Market and deregistered from Section 12(b). The stock currently is registered under Section 12(g) and quoted on the Pink Sheets under the symbol “TVINQ.PK”.

TVI has failed to comply with Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder, while its common stock was registered with the Commission in that it has not filed an Annual Report on Form 10-K since March 20, 2008, or periodic or quarterly reports on Form 10-Q for any fiscal period subsequent to its fiscal quarter ending Sept. 30, 2008.

The Commission cautions brokers, dealers, shareholders, and prospective purchasers that they should carefully consider the foregoing information along with all other currently available information and any information subsequently issued by the company.

Further, brokers and dealers should be alert to the fact that Section 12(j) provides, in pertinent part, as follows:

No member of a national securities exchange, broker, or dealer shall make use of the mails or any means or instrumentality of interstate commerce to effect any transaction in, or to induce the purchase or sale of, any security the registration of which has been and is suspended or revoked pursuant to the preceding sentence.

Without admitting or denying the findings in the Order Instituting Administrative Proceedings Pursuant to Section 12(j) of the Securities Exchange Act of 1934, Making Findings, and Revoking Registration of Securities, TVI consented to the entry of an order finding that it had violated Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder and revoking the registration of each class of TVI’s securities registered with the Commission pursuant to Section 12 of the Exchange Act. (Rel. 34-60724; File No. 3-13627)

SEC v. Frank Bluestein

The Securities and Exchange Commission today charged Detroit-area stock broker Frank Bluestein with fraud, alleging that he lured elderly investors into refinancing the mortgages on their homes in order to fund their investments in a $250 million Ponzi scheme.

The SEC alleges that Bluestein acted as the single largest salesperson in the Ponzi scheme operated by Edward May and his company, E-M Management Company LLC (E-M). The SEC previously filed charges against May and E-M in connection with the fraudulent scheme.

The SEC alleges that Bluestein specifically targeted potential investors who were retired or elderly and conducted so-called “investment seminars” in Michigan and California to lure them into investing in E-M securities.

The SEC’s complaint, filed in the U.S. District Court for the Eastern District of Michigan, alleges that Bluestein facilitated May’s fraudulent scheme by raising approximately $74 million from more than 800 investors through the sale of E-M securities over a five-year period. Bluestein, through his company Maximum Financial, conducted numerous investment seminars to find new E-M investors.

According to the SEC’s complaint, Bluestein was very methodical and careful not to discuss the E-M offerings openly during these “seminars” in a way that would alert attendees to the fact that they were actually forums to pitch the E-M offerings. Bluestein first gained the trust of potential investors in attendance by discussing generic financial planning topics and other investment products. But under the guise of informal conversations, Bluestein would generate talks among attendees who already had invested in E-M offerings. For instance, Bluestein would often ask if they had “received their Ed May checks?” or “How do you like those Ed Mays?” in order to drum up discussion of the investments and attract the interest of other potential investors attending the seminars.

The SEC’s complaint alleges that Bluestein misrepresented to investors that the investments were low-risk and that he had conducted adequate due diligence with respect to the investments when, in fact, he did little to investigate the legitimacy of the E-M offerings even when confronted with serious red flags about the existence of some transactions. Bluestein also misled investors about the compensation he was receiving from the offerings by failing to disclose that he received at least $2.4 million in commissions from May and E-M in addition to the $1.4 million in disclosed compensation he received from investor funds.

The SEC complaint alleges violations of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 (Securities Act), Sections 10(b) and 15(a) of the Securities Exchange Act of 1934 (Exchange Act), and Rule 10b-5 thereunder by Bluestein. As part of this action, the SEC seeks an order of permanent injunction against Bluestein as well as the payment of disgorgement of ill-gotten gains, prejudgment interest and financial penalties. [SEC v. Frank Bluestein, Civil Action No. 2:09-cv-13809 (E.D. Mich.) (Friedman, J.)] (LR-21223)

SEC Obtains Emergency Relief Against Stock Distributors Stephen Carnes, Lawrence Powalisz and Others

The Securities and Exchange Commission announced today that on September 25, it obtained emergency relief against Stephen W. Carnes, Lawrence A. Powalisz, their companies K&L International Enterprises, Inc., Signature Leisure, Inc., and Signature Worldwide Advisors, LLC (collectively, the Stock Distributors), as well as Jared E. Hochstedler and Enzyme Environmental Solutions, Inc. (Enzyme Environmental) The Honorable Gregory A. Presnell of the United States District Court for the Middle District of Florida entered a temporary restraining order (TRO) enjoining all defendants from violating Sections 5(a) and (c) of the Securities Act of 1933. Judge Presnell also ordered an asset freeze against the Stock Distributors and temporarily prohibited them from participating in any offering of penny stock.

The SEC’s complaint, filed on September 24, alleges that the defendants engaged in an ongoing scheme to evade the registration provisions of the federal securities laws by selling billions of shares of stock issued by microcap companies to the investing public without adhering to the registration requirements of Section 5 of the Securities Act. According to the complaint, the scheme involved a series of transactions between the Stock Distributors and the microcap companies, including Enzyme Environmental (the Issuers), with the same essential characteristics: First, a Stock Distributor either purported to lend money to an Issuer or the Issuer identified a “debt” owed to its officer that the Issuer and officer assigned to the Stock Distributor. Second, to reduce or eliminate the loan or the assigned debt, the Issuer issued shares of its stock to the Stock Distributor. Third, before or after the stock issuances, the Stock Distributor paid the Issuer or an affiliate of the Issuer. Finally, the Stock Distributor immediately sold the shares into the public market. In two years, the Stock Distributors generated approximately $7 million in illegal profits the complaint alleged.

In addition to the emergency relief already obtained, the SEC is seeking permanent injunctions, disgorgement of ill-gotten gains, and civil penalties against all defendants. The SEC is also seeking penny stock bars against the Stock Distributors. [SEC v. K&L International Enterprises, Inc., et al., Case No. 6:09-cv-1638-Orl-31KRS (M.D. Fla.)] (LR-21224)


Approval of Proposed Rule Changes

The Commission approved a proposed rule change (SR-CBOE-2009-057) submitted by the Chicago Board Options Exchange related to market-maker and specialist orders. Publication is expected in the Federal Register during the week of September 28. (Rel. 34-60710)

The Commission approved a proposed rule change (SR-NYSEArca-2009-70) submitted by NYSE Arca amending Rule 10.12 (Minor Rule Plan). Publication is expected in the Federal Register during the week of September 28. (Rel. 34-60716)





Modified: 09/28/2009