RULES AND RELATED MATTERS
Amendments to Rules for Nationally Recognized Statistical Rating Organizations
The Commission is adopting rule amendments that impose additional disclosure and conflict of interest requirements on nationally recognized statistical rating organizations ("NRSROs") in order to address concerns about the integrity of the credit rating procedures and methodologies at NRSROs. Publication is expected in the Federal Register during the week of November 23. (Rel. 34-61050)
Proposed Rules for Nationally Recognized Statistical Rating Organizations
The Commission is proposing rule amendments and a new rule that would impose additional requirements on nationally recognized statistical rating organizations ("NRSROs"). The proposed amendments and rule would require an NRSRO: (1) to furnish a new annual report describing the steps taken by the firm's designated compliance officer during the fiscal year with respect to compliance reviews, identifications of material compliance matters, remediation measures taken to address those matters, and identification of the persons within the NRSRO advised of the results of the reviews; (2) to disclose additional information about sources of revenues on Form NRSRO; and (3) to make publicly available a consolidated report containing information about revenues of the NRSRO attributable to persons paying the NRSRO for the issuance or maintenance of a credit rating. Publication is expected in the Federal Register during the week of November 23. (Rel. 34-61051)
Investment Advisers Sanctioned
The investment adviser registrations of KHF Advisors, LLC (KHF), and Appalachian Asset Management, Inc., have been revoked. Both are controlled by Knox H. Fuqua (Fuqua) of Charleston, West Virginia. The sanctions were ordered in administrative proceedings before an administrative law judge, following a court-ordered injunction against Fuqua and KHF. In August 2009, Fuqua and KHF were enjoined from violating the antifraud provisions of the federal securities laws, based on their misappropriation of client funds and other misconduct. Clients gave Fuqua and KHF discretionary authority over their money, with the caveat that the money not be invested in high risk investments. Instead of investing clients' funds according to their instructions, Fuqua and KHF used the funds to pay business expenses and personal expenses of Fuqua and to repay money misappropriated from other investors. (Rel's IA-2954 and IA-2955; File Nos. 3-13615 and 3-13616)
Commission Revokes Registrations of Securities of Three Issuers for Failure to Make Required Periodic Filings
On November 24, the Commission instituted separate settled proceedings pursuant to Section 12(j) of the Securities Exchange Act of 1934 revoking the registration of each class of registered securities of each of the following issuers for failure to make required periodic filings with the Commission (ticker symbols shown where available):
Without admitting or denying the findings of the order pertaining to that issuer, except as to jurisdiction, which each admitted, each of the foregoing issuers separately consented to the entry of an order pertaining to that issuer finding that it had failed to comply with Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder and revoking the registration of each class of the issuer's securities pursuant to Section 12(j) of the Exchange Act.
Brokers and dealers should be alert to the fact that Exchange Act 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 . . . .
For further information, please see Order Instituting Proceedings, Making Findings and Revoking Registration of Securities Pursuant to Section 12(j) of the Securities Exchange Act of 1934, In the Matter of ClearComm LP, Rel. 34-61056; File No. 3-13696. Order Instituting Proceedings, Making Findings and Revoking Registration of Securities Pursuant to Section 12(j) of the Securities Exchange Act of 1934, In the Matter of Downey Financial Corp., Rel. 34-61055; File No. 3-13695. Order Instituting Proceedings, Making Findings and Revoking Registration of Securities Pursuant to Section 12(j) of the Securities Exchange Act of 1934, In the Matter of Dynamic Sciences International, Inc., Rel. 34-61054; File No. 3-13694.
In the Matter of Altiva Financial Corp., et al.
An Administrative Law Judge has issued an Order Making Findings and Revoking Registrations by Default as to Ten Respondents (Default Order) in Altiva Financial Corp., Administrative Proceeding No. 3-13651. 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 Altiva Financial Corp., Atlantic Gulf Communities Corp., CFI Mortgage, Inc., Commodore Holdings Ltd., Conversion Technologies International, Inc., Cyntech Technologies, Inc., Dyersburg Corp., Flour City International, Inc., Gerald Stevens, Inc., and Leisure Time Casinos & Resorts, Inc., pursuant to Section 12(j) of the Securities Exchange Act of 1934.
The Commission has previously accepted Offers of Settlement from Diversified Senior Services, Inc., and Platinum Entertainment, Inc. (n/k/a Vidalia Gichner Holdings, Inc.), the other two Respondents named in the OIP. (Rel. 34-61058A; File No. 3-13651)
Jury Enters Verdict in Insider Trading Case
The Commission announced that a federal jury in Boston returned a verdict on Nov. 20, 2009 in favor of the SEC against a former Fidelity Investments trader for insider trading. David K. Donovan, of Massachusetts, was found to have engaged in insider trading in stock of Covad Communications Group, Inc. ("Covad"). The jury found Donovan's co-defendant, David R. Hinkle of Texas, not liable for insider trading.
In its complaint, the SEC had alleged that, between July and Sept. 2003, Donovan obtained confidential information on Fidelity's internal order database that Fidelity was purchasing a substantial amount of Covad common stock for its advisory clients. The Commission's complaint alleged that after viewing Fidelity's orders and being denied permission by Fidelity to buy Covad stock in his own personal account, Donovan caused purchases of the stock to be made in early August 2003 in the account of his mother. According to the Commission's complaint, Donovan's mother profited after later selling the Covad stock in early Sept. 2003, after the price of Covad stock had increased.
The jury heard closing arguments in the seven-day trial on Nov. 19, 2009 and announced its verdict the next day. In rendering its verdict, the jury found that David Donovan engaged in insider trading by knowingly giving to his mother material, nonpublic information concerning Covad stock in violation of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. Although the jury found that Donovan tipped his mother to inside information about Covad, it did not find that he tipped co-defendant David Hinkle to inside information, and did not find Hinkle liable for insider trading.
The Honorable Rya W. Zobel of the United States District for the District of Massachusetts presided over the trial. The SEC filed its complaint on April 16, 2008.
Donovan was previously a respondent in unrelated administrative proceedings instituted by the Commission on March 5, 2008, alleging that he and others at Fidelity accepted travel, entertainment, and gifts from brokerage firms that sought and obtained orders for securities transactions on behalf of the Fidelity Funds. Donovan later settled that matter by agreeing to an Order by the Commission issued on Dec. 11, 2008, without admitting or denying the Commission's findings, that Donovan violated Section 17(e)(1) of the Investment Company Act of 1940 and ordering him to cease and desist from violating that law, censuring him, and ordering him to pay over $208,000 in disgorgement of ill-gotten gains, prejudgment interest, and civil penalties.
Securities and Exchange Commission v. David K. Donovan, Jr. and David R. Hinkle, Civil Action No. 08-CA-10649-RWZ (D. Mass., Complaint filed April 16, 2008) (LR-21312)
INVESTMENT COMPANY ACT RELEASES
Members Mutual Funds, et al.
A notice has been issued giving interested persons until December 18, 2009 to request a hearing on an application filed by Members Mutual Funds, Ultra Series Fund and Madison Asset Management, LLC for an order exempting them from Section 15(a) of the Investment Company Act of 1940 (Act) and Rule 18f-2 under the Act. The order would permit the applicants to enter into and materially amend subadvisory agreements without shareholder approval. (Rel. IC-29062 - November 23)
Proposed Rule Changes
The Commission granted approval to a proposed rule change filed by Financial Industry Regulatory Authority (SR-FINRA-2009-057), under Section 19(b)(2) of the Securities Exchange Act of 1934 Relating to Section 1(c) of Schedule A to the FINRA By-Laws to Amend the Personnel Assessment and Gross Income Assessment. Publication is expected in the Federal Register during the week of November 23. (Rel. 34-61042)
The Commission issued notice of a proposed rule change submitted by New York Stock Exchange (SR-NYSE-2009-116) pursuant to Rule 19b-4 under the Securities Exchange Act of 1934 to increase the ceiling on its equity ownership interest in BIDS Holdings L.P. to less than 10%. Publication is expected in the Federal Register during the week of November 23. (Rel. 34-61043)
Immediate Effectiveness of Proposed Rule Changes
A proposed rule change filed by NYSE Arca to amend rules 5.17 and 6.8 relating to position limit exemptions (SR-NYSEArca-2009-100) 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 November 23. (Rel. 34-61033)
A proposed rule change filed by NYSE Amex to amend rules 904 and 904C relating to position limit exemptions (SR-NYSEAmex-2009-80) 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 November 23. (Rel. 34-61034)
A proposed rule change filed by NASDAQ OMX BX (SR-BX-2009-073) relating to the expansion of the $1.00 Strike Program to allow the listing of low-strike LEAPS on the Boston Options Exchange Facility has become immediately effective under Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected the Federal Register during the week of November 23. (Rel. 34-61041)
SECURITIES ACT REGISTRATIONS
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