SEC Announces $418 Million Fair Fund Distribution to Harmed Investors in Invesco Mutual Funds
On Dec. 14, 2009, the Securities and Exchange Commission announced the Fair Fund distribution of approximately $418 million to more than one million investors who were affected by undisclosed market timing in certain Invesco mutual funds advised by Invesco Funds Group, Inc. (IFG).
The Fair Fund distribution stems from a prior SEC enforcement action against IFG. This distribution also includes money from two other Fair Funds related to separate unlawful marketing timing enforcement actions that affected Invesco investors.
Specifically, the IFG Fair Fund includes $325 million in disgorgement and penalties collected from IFG after the Commission brought settled administrative and cease-and-desist proceedings against IFG in 2004, as well as accrued interest. This distribution also includes approximately $45.8 million in disgorgement, penalties and accumulated interest from the Banc of America Capital Management, LLC, BACAP Distributors LLC, and Banc of America Securities, LLC Fair Fund; and approximately $8.7 million in disgorgement, penalties and accumulated interest from the Bear, Stearns & Co., Inc. and Bear, Stearns Securities Corp. Fair Fund.
The Sarbanes-Oxley Act of 2002 (SOX) gave the SEC authority to increase the amount of money returned to injured investors by allowing civil penalties to be included in Fair Fund distributions. Prior to SOX, only disgorgement could be returned to investors. The SEC has returned approximately $7 billion in Fair Funds to investors since gaining this authority after the passage of SOX.
The Fair Fund Administrator responsible for distribution is Boston Financial Data Services, Inc. (BFDS). Investor questions regarding the distribution may be directed to BFDS at (866) 700-0255. Information regarding the distribution also can be obtained at http://www.invescofairfund.com.
Modified Plan of Distribution: http://www.sec.gov/litigation/admin/2008/34-57860-mdp.pdf
May 23, 2008 Order Approving the Modified Plan of Distribution: http://www.sec.gov/litigation/admin/2008/34-57860.pdf
Oct. 8, 2004 Order Instituting Administrative and Cease-and-Desist Proceedings: http://www.sec.gov/litigation/admin/34-50506.htm
(Press Rel. 2009-264)
RULES AND RELATED MATTERS
Notice of Findings, Opinion, and Order of the Commission
The Commission has approved a Form 1 application submitted by the C2 Options Exchange, Incorporated seeking registration as a national securities exchange pursuant to Section 6 of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of December 14. (Rel. 34-61152)
In the Matter of AppOnline.com, Inc.
An Administrative Law Judge has issued an Order Making Findings and Revoking Registrations by Default (Default Order) in AppOnline.com, Inc., Administrative Proceeding No. 3-13688. The Order Instituting Proceedings alleged that eleven Respondents failed repeatedly to file required annual and quarterly reports while their securities were registered with the Securities and Exchange Commission. The Default Order finds these allegations to be true as to all eleven Respondents and revokes the registrations of each class of registered securities of AppOnline.com, Inc., AstroPower, Inc., Condor Gold Corp., EPL Technologies, Inc., General Credit Corp., Integra, Inc., Integrated Health Services, Inc., Log On America, Inc., Matlack Systems, Inc., PixTech, Inc., and Virtual Communications, Inc., pursuant to Section 12(j) of the Securities Exchange Act of 1934. (Rel. 34-61159; File No. 3-13688)
SEC Obtains Final Judgments by Consent Against Frank J. Russo and FJR Corporation
On Dec.11, 2009, the Federal Court for the District of Massachusetts entered final judgments by consent in a previously-filed enforcement action against Frank J. Russo (Russo), a Massachusetts-based former investment adviser and his investment advisory corporation, FJR Corporation (FJR). The Court also entered an order by default on Oct. 30, 2009, against Russo Associates Limited Partnership (Russo Associates), a now defunct limited partnership controlled by Russo. The judgments enjoin Russo, FJR and Russo Associates from future violations of the securities laws. Also, on Oct. 2, 2009, the Commission voluntarily dismissed without prejudice the CommissionŐs case against Eliot Partners (Eliot Partners), also defunct, because it had no status as a legal entity and was merely a d/b/a for Russo.
The Commission had filed an emergency enforcement action on June 6, 2006, against Russo, FJR, Russo Associates and Eliot Partners, and obtained a court order freezing RussoŐs assets and the assets of entities he controlled. The CommissionŐs complaint alleged that Russo and FJR convinced at least 160 investors to invest a total of over $15 million in the purported investment vehicles they controlled. The complaint alleged that Russo mislead investors about the nature of the investments and their expected returns. According to the complaint, Russo also diverted at least $11.5 million in investor funds to Veritasiti Corporation, a private California company which Russo co-founded with a college friend. On June 28, 2006, the Commission amended its complaint to name Veritasiti as a relief defendant and obtained a court order freezing its assets. On Oct. 30, 2008, the Court entered a default judgment against Veritasiti, ordering the company to pay disgorgement and pre-judgment interest of $14.1 million.
On Feb. 25, 2008, in a parallel criminal proceeding, Russo pled guilty to federal charges of investment fraud and mail fraud. He was sentenced to 18 years in prison to be followed by 3 years of supervised release and ordered to pay $20 million in restitution and a $500,000 fine. Because of those criminal sanctions, the judgments the Commission obtained on December 11 against Russo and FJR do not include additional monetary relief. Russo, who is currently incarcerated, was also barred by the Commission in March 2008 from any future association with any investment adviser based on his criminal conviction. [SEC v. Frank J. Russo et al., Civil Action No. 06-10984 RGS, USDC, D. Mass.] (LR-21333)
Court Orders Distribution in NewAlliance Bancshares IPO Fraud
The Securities and Exchange Commission announced today that the United States District Court for the District of Connecticut has entered an order disbursing funds to victims of the alleged fraud relating to the NewAlliance Bancshares, Inc. initial public offering (IPO). The Eligible Claimants, as set forth in the Distribution Plan attached to the Court's order, are those depositors of the bank who (1) did not receive all the shares they requested in the IPO and (2) submitted a claim form to the SEC. These victims will receive a total of approximately $3.3 million collected as a result of the SEC's enforcement actions in this matter.
In three separate enforcement actions, the SEC charged various defendants with engaging in fraudulent schemes in connection with the NewAlliance IPO. The Commission's complaints alleged that (1) first priority for receipt of stock in the IPO was given to depositors of New Haven Savings Bank (the predecessor to NewAlliance) as of June 30, 2002, (2) the IPO offering was oversubscribed, and (3) as a result of the alleged fraud, certain eligible depositors did not receive all the shares they requested. Eligible depositors were thus deprived of the opportunity to purchase a total of 790,000 shares of NewAlliance stock.
Pursuant to the Distribution Plan, each Eligible Claimant will receive $4.19 per share for the number of shares of NewAlliance stock they would have received but for the fraud. In calculating the number of shares each Eligible Claimant would have received but for the fraud, the Commission utilized the services of Crowe Horwath (the successor to Crowe Chizek, an accounting and consulting firm retained by NewAlliance at the time of the IPO). Using the allocation formula set forth in the NewAlliance IPO prospectus, Crowe Horwath determined exactly how many of the 790,000 shares at issue would have been received by each of the Eligible Claimants if not for the alleged fraud. Each Eligible Claimant will receive a check for $4.19 multiplied by the number of shares he or she would have received.
A fourth SEC enforcement action remains pending in U.S. District Court in Connecticut, SEC v. Gary Richetelli. [SEC v. Robert Ross, et al., Civil Action No. 3:05-CV-1036 (JBA), USDC, D. Conn.; SEC v. Gary Richetelli, Civil Action No. 3:09-CV-00361 (CFD), USDC, D. Conn.] (LR-21334)
SEC Charges Former Officer of Pride International with Violating the Foreign Corrupt Practices Act
On Dec. 11, 2009, the Securities and Exchange Commission charged a former officer of Pride International, Inc. (Pride) with violations relating to bribes paid to foreign officials in Mexico and Venezuela. The Commission's complaint names Bobby Benton of Houston, Texas, Pride's former Vice President, Western Hemisphere Operations.
The complaint alleges that in December 2004, Benton authorized the bribery of a Mexican customs official in return for favorable treatment regarding customs deficiencies identified during an inspection of a supply boat. The complaint further alleges that Benton had knowledge of a second bribe paid to a different Mexican customs official that same month. It is also alleged that from approximately 2003 to 2005, a manager of a Pride subsidiary in Venezuela authorized the bribery of an official of Venezuela's state-owned oil company in order to secure extensions of three drilling contracts. Benton, in an effort to conceal these payments, redacted references to bribery in an action plan responding to an internal audit report and signed two false certifications in connection with audits and reviews of Pride's financial statements denying any knowledge of bribery.
The SEC's complaint charges Benton with violating Sections 13(b)(5) and 30A of the Securities Exchange Act of 1934 and Rules 13b2-1 and 13b2-2 thereunder, and aiding and abetting violations of Sections 13(b)(2)(A), 13(b)(2)(B), and 30A of the Securities Exchange Act of 1934. The SEC's action seeks a permanent injunction, a civil penalty, and the disgorgement of ill-gotten gains plus prejudgment interest. [SEC v. Bobby Benton, Civil Action No. 4:09-cv-03963, USDC, SDTX] (LR-21335)
Proposed Rule Change
NASDAQ OMX PHLX filed a proposed rule change (SR-Phlx-2009-101) under Section 19(b)(1) of the Securities Exchange Act of 1934 relating to collection of fees. Publication is expected in the Federal Register during the week of December 7. (Rel. 34-61141)
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