SEC Publishes Public Request for Comment to Inform Study of Obligations of Broker-Dealers and Investment Advisers
The Securities and Exchange Commission today published a request for public comment to inform its study of the obligations and standards of care of broker-dealers and investment advisers providing personalized investment advice about securities to retail investors.
The study is required under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which President Obama signed into law on July 21, 2010.
As required by the Dodd-Frank Act, the SEC is requesting public input, comments, and data on issues related to the effectiveness of existing standards of care for brokers-dealers and investment advisers, and whether there are gaps, shortcomings, or overlaps in the current legal or regulatory standards.
"Broker-dealers and investment advisers provide critical financial services to millions of American investors," said SEC Chairman Mary L. Schapiro. "A system that fairly and effectively regulates these market participants is essential to protecting investors. We look forward to receiving comments from the public on these important issues."
The public comment period will remain open for 30 days, following publication of the comment request in the Federal Register. The comment form is publicly available on the SEC's website at http://www.sec.gov/rules/other.shtml. (Press Rel. 2010-134)
Securities and Exchange Commission Orders Hearing on Registration Suspension or Revocation Against Nine Public Companies for Failure to Make Required Periodic Filings
On July 26, 2010, 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 nine companies for failure to make required periodic filings with the Commission:
In this Order, the Division of Enforcement (Division) alleges that the nine 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. 34-62574; File No. 3-13978)
Commission Revokes Registration of Securities of Lysander Minerals Corp. (f/k/a Lysander Gold Corp.) for Failure to Make Required Periodic Filings
On July 27, 2010, the Commission revoked the registration of each class of registered securities of Lysander Minerals Corp. (f/k/a Lysander Gold Corp.) (Lysander Minerals) for failure to make required periodic filings with the Commission.
Without admitting or denying the findings in the Order, except as to jurisdiction, which it admitted, Lysander Minerals consented to the entry of an Order Making Findings and Revoking Registration of Securities Pursuant to Section 12(j) of the Securities Exchange Act of 1934 as to Lysander Minerals Corp. (f/k/a Lysander Gold Corp.) finding that it had failed to comply with Section 13(a) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 13a-1 and 13a-16 thereunder and revoking the registration of each class of Lysander Minerals' securities pursuant to Section 12(j) of the Exchange Act. This order settled the proceedings brought against Lysander Minerals in In the Matter of Life Resources, Inc., et al., Administrative Proceeding File No. 3-13917.
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 see Order Instituting Administrative Proceedings and Notice of Hearing Pursuant to Section 12(j) of the Securities Exchange Act of 1934, In the Matter of Life Resources, Inc., et al., Administrative Proceeding File No. 3-13917, Exchange Act Release No. 62201, June 1, 2010. (Rel. 34-62576; File No. 3-13917)
SEC Files Settled Books and Records and Internal Controls Charges Against General Electric Company and Two Subsidiaries for Improper Payments to Iraqi Ministries Under the U.N. Oil for Food Program. GE Agrees to Pay Over $23.4 Million in Disgorgement, Interest, and Penalties
The Securities and Exchange Commission today filed Foreign Corrupt Practices Act books and records and internal controls charges against General Electric Company (GE) and two GE subsidiaries -- Ionics, Inc. (currently GE Ionics, Inc.) and Amersham plc (currently GE Healthcare Ltd.) -- in the U.S. District Court for the District of Columbia. The General Electric Company, headquartered in Fairfield, Connecticut, participates in a wide variety of markets. The SEC alleges that two GE subsidiaries - along with two other subsidiaries of public companies that have since been acquired by GE - made $3.6 million in illegal kickback payments in the form of cash, computer equipment, medical supplies, and services to the Iraqi Health Ministry or the Iraqi Oil Ministry in order to obtain valuable contracts under the U.N. Oil for Food Program.
According to the Commission's Complaint:
From approximately 2000 to 2003, two GE subsidiaries, Marquette-Hellige (Marquette) and OEC-Medical Systems (Europa) AG (OEC-Medical), made approximately $2.04 million in kickback payments in the form of computer equipment, medical supplies, and services to the Iraqi Health Ministry. Two other current GE subsidiaries, Ionics Italba S.r.L. (Ionics Italba), and Nycomed Imaging AS (Nycomed), made approximately $1.55 million in cash kickback payments under the Program prior to GE's acquisition of their parent companies. Nycomed was a subsidiary of publicly-registered Amersham plc, which was acquired by GE after the conduct at issue in the Complaint and is currently known as GE Healthcare Ltd. Ionics Italba was a subsidiary of publicly-registered Ionics, Inc., which was acquired by GE after the conduct at issue and is currently known as GE Ionics, Inc.
Marquette, based in Germany, manufactures and sells cardiology monitoring equipment and has been a GE subsidiary since 1998. Marquette entered into three Program contracts in which it either paid or agreed to pay illegal kickbacks in the form of computer equipment, medical supplies, and services after declining to make the payments in cash. The contracts were for the supply of disposable electrodes, transducers, and fetal monitors to the Iraqi Health Ministry. The contracts generated a combined gross profit to Marquette of $8.8 million. In order to obtain two of the contracts, Marquette's Iraqi agent made in kind kickback payments of goods and services worth approximately $1.2 million to the Iraqi Health Ministry in violation of UN regulations. In order to obtain the third contract, the agent offered to make an additional in-kind kickback payment worth approximately $250,000. The illegal kickbacks were made or offered with the knowledge and approval of Marquette officials.
OEC-Medical, based in Switzerland, manufactures and sells medical equipment. In 2000, OEC-Medical entered into a Program contract to provide C-Arms (C-shaped armatures used to support X ray equipment) to the Iraqi Ministry of Health. OEC made an in-kind kickback payment worth approximately $870,000 on the contract and earned a wrongful profit of $2.1 million. The OEC-Medical contract was negotiated by the same third party agent that handled the Marquette contracts. As was done with the Marquette contracts, the Iraqi agent agreed to make the payment on behalf of OEC-Medical in the form of computer equipment, medical supplies, and services, rather than cash. In order to conceal from UN inspectors the fact that the agent's commission had been increased to cover an illegal kickback, OEC-Medical and the agent entered into a fictitious "services provider agreement," purporting to identify services the agent would perform to justify his increased commission.
During the Program, Nycomed was a subsidiary of Amersham plc, which GE acquired in 2004. Nycomed's violations occurred prior to the 2004 acquisition. At the time of the violations, however, Amersham plc was subject to the Commission's regulatory jurisdiction because it listed American Depository Receipts on the NYSE. GE acquired the liabilities of Amersham plc, along with the assets, in the 2004 acquisition.
Between 2000 and 2002, Norway-based Nycomed entered into nine contracts involving the payment of cash ASSF kickbacks. The contracts were all direct agreements between Nycomed and the Iraqi Ministry of Health for the provision of Omnipaque and Omniscan. Omnipaque is an injectible contrast agent used in conjunction with X-rays; and Omniscan is a contrast agent used in conjunction with magnetic resonance imaging (MRI). Nycomed paid approximately $750,000 in kickbacks on the nine contracts and earned approximately $5 million in wrongful profits. The contracts were negotiated by Nycomed's Jordanian agent. The kickback payments were explicitly authorized by Nycomed's salesman in Cyprus. The Nycomed salesman increased the agent's commission from 17.5% to 27.5% of the contract price, and artificially increased the UN contract prices by 10%, all to cover the cost of the kickbacks.
During its involvement in the Program, Ionics Italba was a subsidiary of Ionics, Inc., which GE acquired in 2005. Ionics Italba's violations occurred prior to the acquisition. At the time of the violations, however, Ionics, Inc., was a publicly-listed company in the United States and was therefore subject to the Commission's regulatory jurisdiction. GE acquired Ionics' liabilities, along with the assets, in the 2005 acquisition.
Ionics Italba, based in Italy, manufactures and sells water purification equipment. Between 2000 and 2002, Ionics Italba paid $795,000 in kickbacks and earned $2.3 million in wrongful profits on five Program contracts to sell water treatment equipment to the Iraqi Oil Ministry. In the first of these contracts, the illegal kickback payment was concealed under a fictitious line item for "modification and adaptation at site of obsolete spare parts." When UN inspectors requested additional detail about the line item, officials at Ionics Italba passed the inquiry along to the Iraqi Oil Ministry. The Ministry's proposed response, which described services neither party intended to be performed, was incorporated nearly verbatim in a letter that Ionics Italba provided to the UN. Four of the five contracts were negotiated with side letters documenting the commitment of Ionics Italba to make cash kickback payments. The side letters were concealed from UN inspectors in violation of a Program requirement to provide all contract documentation for inspection and UN approval. On the majority of the Ionics Italba contracts, invoices provided by the sales agent included fictitious activities to justify the agent's inflated commission.
GE; Ionics, Inc.; and Amersham plc failed to maintain adequate systems of internal controls to detect and prevent the payments; and the defendants' accounting for these transactions failed properly to record the nature of the payments. GE; Ionics, Inc.; and Amersham plc, without admitting or denying the allegations in the Commission's complaint, consented to the entry of a final judgment permanently enjoining them from future violations of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934 and ordering GE to disgorge $18,397,949 in wrongful profits, pay $4,080,665 in pre-judgment interest, and pay a civil penalty of $1,000,000.
The settlement with GE represents the Commission's fifteenth enforcement action brought in connection with the UN Oil for Food Program. In total, the SEC has recovered over $204 million in disgorgement of profits, prejudgment interest, and civil penalties in Oil for Food-related cases.
The Commission considered remedial acts promptly undertaken by GE and the cooperation the company afforded the Commission staff in its investigation. The Commission acknowledges the assistance of the Department of Justice, Fraud Section, and the United Nations Independent Inquiry Committee. [SEC v. General Electric Company; Ionics, Inc.; and Amersham plc, Civil Action No. 1:10-CV-01258 (D.D.C.)(RWR)] (LR-21602; AAE Rel. 3159)
INVESTMENT COMPANY ACT RELEASES
Orders of Deregistration Under the Investment Company Act
Orders have been issued under Section 8(f) of the Investment Company Act declaring that each of the following has ceased to be an investment company:
Northern Funds, et al.
A notice has been issued giving interested persons until Aug. 17, 2010, to request a hearing on an application filed by Northern Funds, et al. for an order under Section 6(c) of the Investment Company Act for an exemption from Sections 18(f) and 21(b) of the Act, under Section 12(d)(1)(J) of the Act for an exemption from Section 12(d)(1) of the Act, under Sections 6(c) and 17(b) of the Act for an exemption from Sections 17(a)(1), 17(a)(2) and 17(a)(3) of the Act, and under Section 17(d) of the Act and Rule 17d-1 under the Act to permit certain joint arrangements. The order would permit certain registered open-end management investment companies to participate in a joint lending and borrowing facility. (Rel. IC-29368 - July 23)
Amendment to Proposed Rule Change
The Commission issued a notice of filing of Amendment No. 1 to a proposed rule change by the Municipal Securities Rulemaking Board pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934, consisting of amendments to MSRB Rule G-34, CUSIP Numbers and New Issue Requirements, to enhance the interest rate and descriptive information currently collected and made transparent by the MSRB on municipal auction rate securities and variable rate demand obligations (SR-MSRB-2010-02). Publication is expected in the Federal Register during the week of July 26. (Rel. 34-62550)
Immediate Effectiveness of Proposed Rule Changes
A proposed rule change (SR-BX-2010-051) filed by NASDAQ OMX BX extending the pilot period for Boston Options Exchange to receive inbound routes of orders from Nasdaq Options Services 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 July 26. (Rel. 34-62555)
A proposed rule change (SR-Phlx-2010-98) filed by NASDAQ OMX PHLX relating to the Rebates and Fees for Adding and Removing Liquidity in Select Symbols 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 July 26. (Rel. 34-62562)
A proposed rule change filed by The NASDAQ Stock Market (SR-NASDAQ-2010-089) regarding fees assessed for Supplemental MPIDs 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 July 26. (Rel. 34-62564)
A proposed rule change filed by the International Securities Exchange relating to foreign currency options orders fee discount for market makers and non-ISE market makers (SR-ISE-2010-76) 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 July 26. (Rel. 34-62568)
Approval of Proposed Rule Change
The Commission issued an order approving a proposed rule change, as modified by Amendments No. 1 and 2 thereto, submitted by The NASDAQ Stock Market (SR-NASDAQ-2008-014) pursuant to Rule 19b-4 under the Securities Exchange Act of 1934 to amend certain corporate governance disclosure requirements for listed companies. Publication is expected in the Federal Register during the week of July 26. (Rel. 34-62554)
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