Closed Meeting - Thursday, February 18, 2010 - 2:00 p.m.
The subject matter of the Closed Meeting scheduled for Thursday, February 18, will be: institution and settlement of injunctive actions; institution and settlement of administrative proceedings; an adjudicatory matter; amicus consideration; and other matters relating to enforcement proceedings.
Investor Advisory Committee - Open Meeting - Monday, February 22, 2010 - 9:00 a.m.
The Securities and Exchange Commission Investor Advisory Committee will hold an Open Meeting on Monday, February 22, in the Multipurpose Room, L-006. 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 consideration of a Committee recusal policy, a report from the Education Subcommittee, including a presentation on the National Financial Capability Survey, a report from the Investor as Purchaser Subcommittee, including a discussion of fiduciary duty and mandatory arbitration, a report from the Investor as Owner Subcommittee, including recommendations for the Committee on Regulation FD and proxy voting transparency, as well as reports on a work plan for environmental, social, and governance disclosure and on financial reform legislation, and discussion of next steps and closing comments.
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.
Court Grants Summary Judgment and Enters Final Judgments Against Defendants Raymond C. Dabney, Richard A. Dabney, Charles J. Smith, and Philip M. Young
The Securities and Exchange Commission announced today that the United States District Court for the District of Arizona granted the Commission's motion for summary judgment and entered final judgments, on Feb. 8, 2010, against the four remaining defendants in a civil injunctive action filed by the Commission in August 2008. The final judgments permanently enjoin Raymond C. Dabney of Vancouver, British Columbia, Richard A. Dabney of Rancho Palos Verdes, California, Charles J. Smith of Reno, Nevada, and Philip M. Young of Scottsdale, Arizona, from violations of the securities registration provisions of the federal securities laws, and also enjoin Richard Dabney from violations of the antifraud provisions. The four defendants were ordered to pay more than $1.4 million in disgorgement, interest, and civil penalties. The Commission's complaint alleged that the defendants engaged in an unregistered distribution of the securities of Alliance Transcription Services, Inc. (formerly Strategy X, Inc.) from April 2005 through September 2006 and that Alliance and its officers participated in a scheme to manipulate the price and trading volume of its stock.
The court found that the defendants violated Section 5 of the Securities Act of 1933 (Securities Act) by their direct involvement in the sale of unregistered shares of Alliance stock on at least 15 occasions. In addition, the court found that Richard Dabney, the company's managing director, violated Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder by disseminating press releases containing materially false information about Alliance's purported contracts and revenues.
The final judgment against Richard Dabney permanently enjoins him from violating Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and Section 5 of the Securities Act, orders him to pay disgorgement of $315,940.74 plus prejudgment interest of $87,602.41 and a civil penalty of $130,000, prohibits him for five years from acting as an officer or director of any issuer that has a class of securities registered pursuant to Section 12 of the Exchange Act or that is required to file reports pursuant to Section 15(d) of the Exchange Act, and bars him for five years from participating in any penny stock offering. The final judgment against Raymond Dabney permanently enjoins him from violating Section 5 of the Securities Act and orders him to pay disgorgement of $109,520.00 plus prejudgment interest of $33,817.10 and a civil penalty of $50,000. The final judgment against Smith permanently enjoins him from violating Section 5 of the Securities Act and orders him to pay disgorgement of $148,797.72 plus prejudgment interest of $38,691.19 and a civil penalty of $50,000. The final judgment against Young permanently enjoins him from violating Section 5 of the Securities Act and orders him to pay disgorgement of $357,276.26 plus prejudgment interest of $87,576.53 and a civil penalty of $50,000.
Final judgments against all of the other defendants in this action were entered previously by the court.
For further information, please see Litigation Release Numbers 19870 (Oct. 16, 2006) [subpoena enforcement action filed]; 20676 (Aug. 8, 2008) [civil injunctive action filed and judgment by consent against William D. O'Neal]; 20791 (Oct. 24, 2008) [judgment by default against Alliance]; 21349 (Dec. 23, 2009) [judgment by consent against Clifford A. Lewis]; and Exchange Act Release Number 56610 (Oct. 4, 2007) [order suspending trading in Alliance securities]. [SEC v. Alliance Transcription Services, Inc., et al., CV-08-01464-PHX-NVW (District of Arizona)] (LR-21413)
Securities and Exchange Commission v. Gerald D. Horn
The Securities and Exchange Commission announced that on Feb. 11, 2010, the SEC filed securities fraud charges against Gerald D. Horn (Horn), a resident of Deerfield, Illinois, for his illegal insider trading in the securities of LCA Visions, Inc. (LCA) that resulted in total illicit gains of approximately $1.4 million.
LCA is a public company headquartered in Cincinnati, Ohio that provides laser surgery vision correction services in 31 states. Horn, a doctor of ophthalmology, is both an employee of LCA and the owner of the Illinois professional corporation that operates LCA facilities in the Chicago area.
The SEC's complaint, filed in the U.S. District Court for the Northern District of Illinois, alleges that, between December 2005 and August 2006, Horn traded on the basis of material, non-public information when he made six separate purchases of LCA call and put options, resulting in illicit gains of approximately $869,629. Horn also traded on the basis of material, non-public information when he decided to exercise LCA stock option grants and sell the stock, resulting in a loss avoided of approximately $533,603.
According to the SEC complaint, Horn traded on the basis of information contained in LCA's internal Eyes by Laser Reports, which provided non-public information regarding LCA's total number of laser eye surgeries performed and revenue generated from these procedures. These reports also allowed him to successfully predict whether LCA's earnings would miss or beat LCA's previous earnings guidance previously provided to the public.
The SEC complaint further alleges that, because Horn had material nonpublic information about LCA, Horn never lost money on any of his multiple trades in LCA options, despite his complete lack of prior experience in options trading. Moreover, according to the complaint, Horn was able, with great precision and agility, to switch his trades between calls and puts, predicting that LCA's earnings would either beat or miss its targets, and thus that the price of LCA stock would either rise or fall, and remarkably made the correct decision every time.
The complaint alleges that, during sworn testimony before the SEC, Horn provided numerous false explanations for his timely trading in LCA securities.
According to the SEC complaint, Horn violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. Through its civil action, the SEC seeks a permanent injunction against Horn prohibiting him from future violations of the federal securities laws. The SEC also seeks an order requiring Horn to pay disgorgement of his ill-gotten gains plus prejudgment interest, and a civil penalty. [SEC v. Gerald D. Horn, Civil Action No. 1:10-CV-00955 (N.D. Ill.)] (LR-21414)
SEC Charges Five Individuals With Insider Trading in the Securities of World Fuel Services Corporation
The Securities and Exchange Commission announced that on February 16, it filed a complaint in federal district court in Miami, Florida against Steven Scoppetuolo, Robert S. Tocci, Sarang Ahuja, Richard White, and Eric M. Gordon, alleging that they engaged in illegal insider trading from which they reaped a total of more than $1 million in profits.
The SEC's complaint concerns two separate groups of traders who the SEC alleges illegally traded in the securities of World Fuel Services Corporation prior to two worse than expected earnings announcements by the company in May and August 2007. The complaint alleges that Scoppetuolo, a World Fuel executive, tipped his best friend, Tocci, the company's former Chief Financial Officer, about material, non-public information related to its earnings. The complaint alleges that Tocci then used that information to purchase put options in World Fuel and to sell and short its stock before both earnings announcements. Tocci made a profit of about $262,000 and avoided a loss of $34,000 from his illegal trading. The complaint also alleges that Scoppetuolo or Tocci tipped their securities broker, Ahuja, about World Fuel's earnings, who then also purchased put options and sold short stock in his personal and other customer accounts before both earnings announcements. Ahuja and his customers made a profit of about $170,000 from his illegal trading.
The complaint also alleges that White, World Fuel's Vice President of Tax, sold short stock before both earnings announcements, while in possession of material, non-public information about its earnings. The complaint further alleges that White unlawfully tipped Gordon about World Fuel's non-public earnings, who used the information to buy put options prior to both earnings announcements. Moreover, the complaint alleges that Gordon tipped two of his friends, who also bought put options in World Fuel. Gordon and his friends made a profit of about $659,000 from their illegal trading.
The SEC alleges that Scoppetuolo, Tocci, and White violated Section 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 that Ahuja and Gordon violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. The complaint seeks a judgment against all defendants providing for injunctions, disgorgement of their ill-gotten gains with prejudgment interest, and civil money penalties. The complaint also seeks an order prohibiting Scoppetuolo from serving as an officer or director of a public company. [SEC v. Steven Scoppetuolo, et al., Civil Case No. 1:10-CV-20475, USDC, S.D. Fla.] (LR-21415)
Immediate Effectiveness of Proposed Rule Changes
The NASDAQ OMX BX filed a proposed rule change (BX-2010-006) to amend Rules 2848, 3330, and 9810 to reflect changes to corresponding FINRA Rules. Publication is expected in the Federal Register during the week of February 15. (Rel. 34-61495)
A proposed rule change filed by the Chicago Board Options Exchange (SR-CBOE-2010-010) relating to temporary membership status and interim trading permit access fees 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 February 15. (Rel. 34-61500)
A proposed rule change filed by NASDAQ OMX PHLX relating to routing fees (SR-Phlx-2010-15) has become 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 February 15. (Rel. 34-61509)
Approval of Proposed Rule Changes
The Commission has issued an order approving a proposed rule change filed by the International Securities Exchange (SR-ISE-2009-90) relating to changes to the U.S. Exchange Holdings, Inc. corporate documents and International Securities Exchange Trust Agreement in connection with the Form 1 Applications of EDGA Exchange, Inc. and EDGX Exchange, Inc. Publication is expected in the Federal Register during the week of February 15. (Rel. 34-61498)
The Commission approved a proposed rule change (SR-FINRA-2009-075) submitted under Rule 19b-4 of the Securities Exchange Act of 1934 by the Financial Industry Regulatory Authority to amend Rules 12601(b) and 12902(a) of the Code of Arbitration Procedure for Customer Disputes and Rules 13601(b) and 13902(a) of the Code of Arbitration Procedure for Industry Disputes to clarify the applicability of the fee waiver provision of the postponement rule and to codify the hearing session fee for an unspecified damages claim heard by one arbitrator. Publication is expected in the Federal Register during the week of February 15. (Rel. 34-61505)
Proposed Rule Change
The Financial Industry Regulatory Authority filed a proposed rule change, as modified by Amendment No. 1 (SR-FINRA-2010-003) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934, relating to trade reporting of OTC equity securities and restricted equity securities. Publication is expected in the Federal Register during the week of February 15. (Rel. 34-61510)
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