SEC Issues Notice of Proposed Distribution Plan and Opportunity for Comment in the Matter of Canadian Imperial Holdings, Inc. and CIBC World Markets Corp.
The Securities and Exchange Commission announced today that it has given notice, pursuant to Rule 1103 of the Securities and Exchange Commission's Rules on Fair Fund and Disgorgement Plans, 17 C.F.R. S 201.1103, that the Division of Enforcement has filed a proposed plan (Distribution Plan) for the distribution of the Fair Fund pursuant to Section 308(a) of the Sarbanes-Oxley Act of 2002 in the matter of Canadian Imperial Holdings, Inc. and CIBC World Markets Corp., Admin. Proc. File No. 3-11987. The Fair Fund is comprised of the $125,000,000 paid by Canadian Imperial Holdings, Inc. and CIBC World Markets Corp., plus any accumulated interest and amounts that may be deposited into the fund from respondents in related administrative proceedings, less any federal, state, or local taxes on the interest. The Distribution Plan provides for distribution of the Fair Fund to mutual funds identified in the plan that were affected by the actions of certain market timers between 1999 and January 2003.
A copy of the Distribution Plan may be obtained by submitting a written request to William Finkel, Esq., Senior Counsel, United States Securities and Exchange Commission, 3 World Financial Center, New York, NY 10281. Interested parties may also print a copy of the proposed Distribution Plan from the Commission's public website, http://www.sec.gov/litigation/fairfundlist.htm#cibc. Any person or entity wishing to comment on the Distribution Plan must do so in writing by submitting their comments within 30 days of the date of the notice (i) to the Office of the Secretary, United States Securities and Exchange Commission, 100 F Street, N.E., Washington, DC 20549-1090; or (ii) via the Commission's Internet comment form, www.sec.gov/litigation/admin.shtml; or (iii) by sending an e-mail to firstname.lastname@example.org. Comments submitted by e-mail or via the Commission's web site should include the Administrative Proceeding File Number (Admin. Proc. File No. 3-11987) in the subject line. Comments received will be publicly available. Persons should submit only information that they wish to make publicly available.
For more information, see Securities Act of 1933 Release No. 8592, Securities Exchange Act Release No. 52063, Investment Adviser Act of 1940 Release No. 2407, Investment Company Act of 1940 Release No. 26994 and Press Release No. 2005-103 (July 20, 2005) (Rel. 34-61142; File No. 3-11987)
Closed Meeting - Thursday, December 17, 2009 - 2:00 p.m.
The subject matter of the Closed Meeting scheduled for Thursday, December 17, will be: institution and settlement of injunctive actions; institution and settlement of administrative proceedings; consideration of amicus participation; and other matters relating to enforcement proceedings.
At times, changes in Commission priorities require alterations in the scheduling of meeting items. For further information and to ascertain what, if any, matters have been added, deleted or postponed, please contact: The Office of the Secretary at (202) 551-5400.
Commission Sustains Sanctions Imposed by the NYSE on James Gerard O'Callaghan
The Commission has sustained the sanctions imposed by the New York Stock Exchange, on remand from the Commission, on James Gerard O'Callaghan, an Exchange member and an independent floor broker. In the first proceeding, the Exchange found that O'Callaghan initiated and executed trades in an account over which he had investment discretion. The Exchange censured O'Callaghan, fined him $30,000, and suspended him for three months. In a May 20, 2008 opinion, the Commission sustained the Exchange's findings of violation but remanded the sanctions to address whether they were appropriately remedial and not punitive. On remand, the Exchange concluded that the three month suspension was remedial and therefore in the public interest, and that the censure and fine were warranted. The Commission found that the Exchange's sanctions are neither excessive nor oppressive. (Rel. 34-61134; File No. 3-12668)
Commission Sustains FINRA Disciplinary Action Against Kirlin Securities, Inc., Anthony Kirincic, and Andrew Israel
The Commission sustained FINRA disciplinary action against Kirlin Securities, Inc., formerly a broker-dealer registered with FINRA; Anthony Kirincic, Kirlin's co-chief executive officer; and Andrew Israel, Kirlin's head equity trader. FINRA found that Kirlin, Kirincic, and Israel manipulated the stock price of Kirlin's publicly-traded parent company, Kirlin Holding Corporation (KILN), and thereby violated Section 10(b) of the Securities Exchange Act of 1934, Rule 10b-5 thereunder, and NASD Conduct Rules 2120 and 2110. FINRA found that Kirincic also violated NASD Rule 2110 by signing customer names on several transactional documents, and that Kirlin and Israel violated the rule by failing to provide best execution to a customer.
In sustaining FINRA's findings of violation, the Commission found that "Kirincic traded in KILN [from March 18 through April 22, 2002], as assisted by Israel, for the purpose of increasing the inside bid price of KILN shares." It determined that "KILN's dramatic movement in price, unexplained by other legitimate market forces and considered along with Kirlin's domination of the market for KILN, constitute compelling evidence that Kirincic manipulated the market for KILN." The Commission also found that Kirincic engaged in unethical conduct, and thereby violated NASD Rule 2110, when he signed his parents' names to several transactional documents, conduct which "not only violated a Firm policy rooted in the protection of customers, [but] also furthered his fraud on the market for KILN shares." Finally, the Commission held that Israel (and, through him, the firm) violated the duty of best execution brokers owe their customers in that Israel "did not apply reasonable diligence to obtain the best price" for a customer wishing to liquidate his KILN shares during Kirincic's scheme to increase KILN's price. The Commission noted that Israel was "the only person [on the day the trade occurred] with instant access to market information and a complete picture of the trading that had occurred earlier in the day." Kirincic was barred from associating with any FINRA member firm, Israel was barred with a right to reapply after five years, and Kirlin Securities was expelled from FINRA membership. (Rel. 34-61135; File No. 3-13422)
In the Matter of Applied Wellness Corporation
On Dec. 10, 2009, the Commission issued an Order Instituting Administrative Proceedings and Notice of Hearing Pursuant to Section 12(j) of the Securities Exchange Act of 1934 (Order) as to Applied Wellness Corporation (Applied Wellness).
In the Order, the Division of Enforcement alleges that Applied Wellness failed to make required disclosures in its Form 10-KSB for the fiscal year ended Dec. 31, 2007 concerning its disclosure controls and procedures and regarding its compliance with internal control over financial reporting requirements. The Division of Enforcement also alleges that Applied Wellness is delinquent in its periodic filings, having not filed any annual or quarterly reports for periods subsequent to the fiscal quarter ended March 31, 2008. As a result, the Division of Enforcement alleges that Applied Wellness failed to comply with Section 13(a) of the Securities Exchange Act of 1934 and Rules 13a-1, 13a-13 and 13a-15 thereunder.
A hearing will be scheduled before an administrative law judge to determine whether the allegations contained in the Order are true, to provide Applied Wellness an opportunity to respond to these allegations, and to determine whether it is appropriate to suspend for a period not exceeding 12 months or to revoke the registration of the securities of Applied Wellness. The Order directs the administrative law judge to issue an initial decision within 120 days from the date of service of the Order. (Rel. 34-61137; File No. 3-13707)
Default Judgment of Permanent Injunction and Other Relief Entered Against Defendants Berkshire Resources, L.L.C., Berkshire (40L), L.L.P., Berkshire 2006-5, L.L.P., Passmore-5, L.L.P., Gueydan Canal 28-5, L.L.P., Gulf Coast Development #12, L.L.P., and Drilling Deep in the Louisiana Water, J.V.
The Commission announced that on Nov. 20, 2009, the United States District Court for the Southern District of Indiana entered a Default Judgment of Permanent Injunction and Other Relief against certain Berkshire Defendants. The default judgment enjoins Defendants from violating Sections 5(a) and (c), 8, and 17(a) of the Securities Act of 1933, and Sections 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5, thereunder.
Previously, the Commission filed a complaint against Berkshire Resources and others alleging Defendants carried out an offering fraud. [SEC v. Berkshire Resources, et al., Civil Action No. 09-0704-SEB-JMS] (LR-21330)
SEC Charges Investools Inc. and Two Former Employees with Securities Law Violations for Misrepresentations at Investor Workshops
On Dec. 10, 2009, the Commission today filed a settled civil injunctive action against Investools Inc., Michael J. Drew and Eben D. Miller. Investools agreed to a civil injunction and to pay a $3 million civil penalty. Drew and Miller agreed, respectively, to pay civil penalties of $380,000 and $130,000, and to be enjoined from violating the antifraud provisions of the federal securities laws. Drew and Miller additionally agreed to be enjoined, for five years, from receiving compensation for their participation in, among other related activities, the sale of classes, workshops, or seminars given to actual or prospective securities investors concerning securities trading. In settling the matter, Investools, Drew and Miller neither admitted nor denied the allegations in the Commission's complaint.
The Commission's complaint alleges that from 2004 to approximately June 2007 at Investools how-to-trade-securities workshops former Investools employees Drew and Miller misleadingly portrayed themselves as expert investors who made their living trading securities. They did so to mislead investors into believing that they too would make extraordinary profits trading securities if they purchased expensive Investools instructional courses and other products and followed Investools' securities trading strategies. The complaint further alleges that in reality, neither Drew nor Miller made the trading profits they claimed. For example, in 2005 and 2006, while Drew was portraying himself as a successful investor, he had hundreds of thousands of dollars in net trading losses. In 2006 and 2007, while Miller was portraying himself as a successful investor, he had tens of thousands of dollars in net trading losses.
The complaint also alleges that Investools is liable for the fraudulent conduct of its sales personnel as a "controlling person" under the federal securities laws. According to the complaint, Investools' management learned that sales personnel were claiming that they were successful securities traders. However, Investools did not take the next step--examining workshop speakers' brokerage statements to determine whether their success claims were accurate. The complaint further alleges that Investools did not prevent its speakers from misleading investors about the results of a survey of its customers' trading success.
Investools agreed to be enjoined from violating Sections 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Exchange Act Rule 10b-5, and to pay a civil money penalty. In addition to their five-year conduct-based injunctions and civil money penalties, Drew and Miller agreed to be enjoined from violating Exchange Act Section 10(b) and Exchange Act Rule 10b-5. [SEC v. Investools Inc., Michael J. Drew, and Eben D. Miller, Civil Action No. 1:09-CV-02343 (D.D.C.)] (LR-21331)
SEC Charges Additional Attorney in $20 Million Insider Trading Scheme
The Securities and Exchange Commission today announced insider trading charges against Brien P. Santarlas -- a former attorney at Ropes & Gray LLP -- for his role in the insider trading ring that made over $20 million trading ahead of corporate acquisition announcements using inside information tipped by Santarlas and his colleague at Ropes & Gray, Arthur J. Cutillo, in exchange for cash kickbacks. The SEC alleges that Santarlas misappropriated from his law firm material, nonpublic information concerning at least two corporate acquisitions involving Ropes & Gray clients -- 3Com Corp. and Axcan Pharma Inc.
The complaint alleges that Santarlas gained access to material, nonpublic information by, among other means, accessing Ropes & Gray's computer network and viewing confidential deal documents. The SEC alleges that, using attorney Jason Goldfarb as a conduit, Santarlas and Cutillo tipped inside information concerning these corporate acquisitions to Zvi Goffer (Zvi), a proprietary trader at Schottenfeld Group, LLC (Schottenfeld). The complaint further alleges that Zvi traded on this information for Schottenfeld, and had numerous downstream tippees who also traded on the information, including other professional traders and portfolio managers at hedge fund advisers. The SEC previously charged Cutillo, Goldfarb, Zvi, and six others in connection with this insider trading scheme on Nov. 5, 2009. See SEC v. Cutillo, et al., 09-CV-9208 (S.D.N.Y.) (LAK)/LR-21283.
As a result of conduct described in the complaint, the Commission alleges Santarlas violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The Commission's complaint seeks permanent injunctive relief, disgorgement of illicit profits with prejudgment interest, and the imposition of civil monetary penalties.
In a related criminal case, the U.S. Attorney's Office for the Southern District of New York announced today criminal charges against Santarlas in connection with the above insider trading scheme.
The Commission thanks the U.S. Attorney's Office and the Federal Bureau of Investigation for their cooperation and assistance in connection with this matter.
The Commission's investigation is continuing. [SEC v. Brien P. Santarlas, 09-CV-10100 (S.D.N.Y.)] (LR-21332)
Immediate Effectiveness of Proposed Rule Changes
A proposed rule change filed by the NASDAQ Stock Market (SR-NASDAQ-2009-106), to amend NASDAQ Rule 2330 and IM-2330 to reflect recent changes to a corresponding rule of the Financial Industry Regulatory Authority 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 December 7. (Rel. 34-61128)
A proposed rule change filed by the NASDAQ OMX BX (SR-BX-2009-080) to amend BX Rule 2330 and IM-2330 to reflect recent changes to a corresponding rule of the Financial Industry Regulatory Authority 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 December 7. (Rel. 34-61129)
A proposed rule change (SR-ISE-2009-101) filed by the International Securities Exchange relating to fee changes 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 December 7. (Rel. 34-61131)
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