SEC Completes Inaugural Teacher Training Workshop
Teachers from schools across the country just completed an inaugural Securities and Exchange Commission training course that will help them teach their students about the importance of the financial markets.
The SEC has initiated the new teacher training program in its Office of Investor Education and Advocacy to help classroom teachers and other educators increase their knowledge of the capital markets and develop ways to enhance the financial education programs in their schools. More than 30 educators from across the country attended the inaugural four-day workshop last week that focused on the securities markets, investor protection, and the federal government's oversight role.
SEC Chairman Mary Schapiro, SEC Commissioner Elisse Walter, and a host of SEC staff led training sessions during the program. Representatives from other government agencies including the Treasury Department and the Federal Reserve also made presentations.
"Financial education in our schools can provide a lifetime of dividends," said Lori J. Schock, Director the SEC's Office of Investor Education and Advocacy. "We were fortunate that the workshop coincided with the passage of the Dodd-Frank Act, enabling the teachers to gain a wealth of first-hand knowledge and experience that they can now share directly with the students in their classrooms."
Earlier this year, the SEC's Office of Investor Education and Advocacy began working with NYSE Euronext to help broaden its financial education programs offered to teachers and other educators during the summer. The programs are designed to help educators teach students about the financial marketplace and its importance in their lives and the global economy. (Press Rel. 2010-138)
Closed Meeting - Wednesday, August 4, 2010 - 2:00 p.m.
The subject matter of the Closed Meeting scheduled for Wednesday, Aug. 4, 2010, will be: institution and settlement of injunctive actions; institution and settlement of administrative proceedings; consideration of amici 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.
In the Matter of Eric S. Butler
On July 30, 2010, the Commission issued an Order Instituting Administrative Proceedings Pursuant to Section 15(b) of the Securities Exchange Act of 1934 and Section 203(f) of the Investment Advisers Act of 1940, and Notice of Hearing, against Eric S. Butler.
In the Order, the Division of Enforcement alleges that on Aug.17, 2009, in United States v. Eric Butler and Julian Tzolov, 08 CR 370 (E.D.N.Y.) (JBW), a jury returned a verdict of guilty as to defendant Eric S. Butler on count one (conspiracy to commit securities fraud, 18 U.S.C. §§ 371, 3551, et seq.), count two (securities fraud, 15 U.S.C. §§ 78j(b), 78ff) and 18 U.S.C. §§ 2, 3551 et seq.) and count three (conspiracy to commit wire fraud, 18 U.S.C. §§ 1349, 3551 et seq.) of the fourth superseding indictment. The counts of the fourth superseding indictment to which the jury found Butler guilty alleged, among other things, that Butler, while a registered representatives associated with Credit Suisse Securities (USA) LLC, engaged in a fraudulent scheme which included using certain customers' funds to purchase other types of auction rate securities, instead of the securities that those customers requested; and that he transmitted and caused to be transmitted wire communications in interstate and foreign commerce in furtherance of the fraudulent scheme.
A hearing will be scheduled before an administrative law judge to determine whether the allegations contained in the Order are true, to provide Butler an opportunity to establish any defense to these allegations, and to determine what, if any, remedial action is appropriate in the public interest against Butler. The Order directs the administrative law judge to issue an initial decision within 210 days from the date of service of the Order. (Rels. 34-62603, IA-3062; File No. 3-13986).
In the Matters of John J. Coutris, Michael J. Coutris, and J. Coutris Partners, LP
On July 30, 2010, the Commission issued Orders Instituting Administrative Proceedings Pursuant to Section 15(b) of the Securities Exchange Act of 1934 (Exchange Act), Making Findings, and Imposing Remedial Sanctions (Orders) against: (1) John J. Coutris, (2) Michael J. Coutris, and (3) J. Coutris Partners, LP.
The Orders find that on July 21, 2010, in the civil action SEC v. The Regency Group, LLC, et al., Civil Action No. 09-cv-00497, the United States District Court for the District of Colorado entered orders by consent against John J. Coutris, Michael J. Coutris, and J. Coutris Partners, LP, permanently enjoining them from future violations of the securities registrations provisions of Sections 5(a) and 5(c) of the Securities Act of 1933 and the broker-dealer registration provisions of Section 15(a) of the Exchange Act.
The Orders further find that the Commission's complaint, filed on March 9, 2009 (Complaint), alleges that John J. Coutris, age 39, and Michael J. Coutris, age 29, were general partners in J. Coutris Partners, LP, a Texas limited partnership. According to the Orders, the Complaint further alleges that John J. Coutris, Michael J. Coutris, and J. Coutris Partners, LP acted as necessary participants in unregistered distributions of shares in Xpention Genetics, Inc. (Xpention) and HS3 Technologies, Inc. (HS3) stock. The Complaint also alleges that John J. Coutris and Michael J. Coutris acted as unregistered brokers by actively soliciting investors to purchase Xpention and HS3 shares, making valuations for such investors or giving them advice regarding the investment, participating at key points in the chain of distribution of the shares, and receiving transaction-based compensation, and that J. Coutris Partners, LP, was a vehicle through which they engaged in such activities. The Orders find that the unregistered broker activities of John J. Coutris and Michael J. Coutris occurred from 2004 through at least 2007, while those of J. Coutris Partners, LP, occurred from 2005 through at least 2007.
The Orders bar John J. Coutris, Michael J. Coutris, and J. Coutris Partners, LP, from association with any broker or dealer, based on the injunctions entered against them. Each of the respondents consented to the issuance of the Orders without admitting or denying the findings except as to the entry of the civil injunctions.
For further information, see Lit. Rel. No. 20937 (March 9, 2009). (In the Matter of John J. Coutris - Rel. 34-62611; File No. 3-13987; In the Matter of Michael J. Coutris - Rel. 34-62612; File No. 3-13988; In the Matter of J. Coutris Partners. LP- Rel. 34-62613; File No. 3-13989)
Former Principal of Registered Broker-Dealer WG Trading Company, Limited Partnership, Settles Charges Arising From Massive Misappropriation of Investor Assets
The Securities and Exchange Commission announced that on July 29, 2010, the Honorable George B. Daniels of the United States District Court for the Southern District of New York entered a judgment against Paul Greenwood, a former principal of registered broker-dealer WG Trading Company, Limited Partnership, in SEC v. WG Trading Investors, L.P., 09-CV-1750 (GBD) (S.D.N.Y.). In February 2009, the SEC filed an emergency action and obtained an asset freeze against Greenwood and the other principal of WG Trading Company, Stephen Walsh, and their three affiliated entities, to halt a brazen investment fraud involving the misappropriation of as much as $554 million in investor assets.
The SEC's complaint alleges that, since at least 1996, Greenwood and Walsh promised investors that their money would be invested in a stock index arbitrage strategy. Instead, Greenwood and Walsh essentially treated their clients' investments as their personal piggy bank to purchase multi-million dollar homes, a horse farm and horses, luxury cars, and rare collectibles such as Steiff teddy bears. The SEC's complaint also named as defendants: WG Trading Company; WG Trading Investors, L.P., an unregistered investment vehicle; and Westridge Capital Management, Inc., a registered investment adviser of which Greenwood was also a principal.
Greenwood agreed to settle the SEC's charges by consenting to the entry of the judgment. The judgment provides for a permanent injunction against violating 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 violating or aiding and abetting violations of Sections 206(1), 206(2), and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder. In addition, the judgment provides for the payment of disgorgement plus prejudgment interest, and the imposition of civil monetary penalties, in amounts to be determined at a later date. [SEC v. WG Trading Investors, L.P., 09-CV-1750 (GBD) (S.D.N.Y.)] (LR-21606)
SEC Charges Two Former Public Company Chairmen, Their Lawyer and Their Stockbroker in Fraudulent Scheme
The Securities and Exchange Commission alleged in a civil enforcement action filed on July 29, 2010, that Samuel E. Wyly and his brother, Charles J. Wyly, Jr. (hereinafter the "Wylys"), engaged in a 13-year fraudulent scheme to hold and trade tens of millions of securities of public companies while they were members of the boards of directors of those companies, without disclosing their ownership and their trading of those securities. According to the complaint, the Wylys' scheme defrauded the investing public by materially misrepresenting the Wylys' ownership and trading of the securities at issue while enabling the Wylys to realize hundreds of millions of dollars of undisclosed gain and other material benefits in violation of the federal securities laws governing the ownership and trading of securities by corporate insiders.
The public companies involved in the Wylys' scheme to defraud were, according to the complaint, Michaels Stores, Inc., Sterling Software, Inc., Sterling Commerce, Inc., and Scottish Annuity & Life Holdings Ltd. (now known as Scottish Re Group Limited) (Scottish Re) (hereinafter collectively referred to as "the Issuers"). The complaint alleges that shares of the Issuers were traded on the New York Stock Exchange throughout the period of the Wylys' scheme.
According to the complaint, the apparatus of the fraud was an elaborate sham system of trusts and subsidiary companies located in the Isle of Man and the Cayman Islands (collectively hereinafter the "Offshore System") created by and at the direction of the Wylys. The complaint alleges that the Offshore System enabled the Wylys to hide their ownership and control of the Issuers' securities (hereinafter "Issuer Securities") through trust agreements that purported to vest complete discretion and control in the offshore trustees. In actual fact and practice, according to the complaint, the Wylys never relinquished their control over the Issuer Securities and continued throughout the relevant time period to vote and trade these securities at their sole discretion.
The complaint alleges that through their use of the Offshore System, the Wylys were able to sell without disclosing their beneficial ownership over $750 million worth of Issuer Securities, and to commit an insider trading violation resulting in unlawful gain of over $31.7 million. According to the complaint, the Wylys' attorney and fellow director of three of the Issuers, Michael C. French (French), and their stockbroker, Louis J. Schaufele III (Schaufele), substantially assisted the Wylys' fraudulent scheme, each reaping financial rewards for doing so. The complaint alleges that each also committed primary violations of the antifraud provisions of the securities laws.
The complaint alleges that the Wylys and French knew or were reckless in not knowing their obligations under the federal securities laws as public company directors and greater-than-5% beneficial owners, to report their Issuer Securities holdings and trading on Schedules 13D and Forms 4, public documents filed with the Commission. According to the complaint, the Wylys and French also knew or were reckless in not knowing that the investing public routinely used such disclosures to, among other things, gauge the sentiment of public companies' insiders and large shareholders about those companies' financial condition and prospects, thereby relying on them in making investment decisions. The complaint alleges that despite their knowledge, the Wylys and French systematically and falsely created the impression that the Wylys' holdings and trading of Issuer Securities were limited to the fraction that they held and traded domestically. By depriving existing shareholders and potential investors of information deemed material by the federal securities laws, according to the complaint, the Wylys were able to sell, in large-block trades alone, more than 14 million shares of Issuer securities over many years, realizing gains in excess of $550 million. The complaint further alleges that the sales generating most of these gains were made pursuant to materially false or misleading Commission filings.
The complaint further alleges that the Wylys exploited their illegal non-disclosure of their offshore Issuer Securities to make a massive and bullish transaction in Sterling Software in October 1999 based upon the material and non-public information that they, the Chairman and Vice-chairman of Sterling Software, had jointly decided to sell the company.
This transaction, according to the complaint, yielded ill-gotten gains of over $31.7 million when Sterling Software's sale was ultimately announced to the public less than four months later.
The complaint further alleges that throughout the course of their scheme, the Wylys, French and Schaufele engaged in fraud, deception and material misrepresentation to conceal their actions; and that these acts included: (i) the making of hundreds of false and materially misleading statements to the Issuers, the Issuers' attorneys, investors, the Commission, and, in the case of Schaufele, to brokerage firm intermediaries, (ii) the establishment and operation of an offshore "Wyly family office" in the Cayman Islands as a conduit and repository for communications and records "which should not be seen in the USA," and (iii) the allocation of the Wylys' offshore holdings of Issuer Securities among different, and often newly created, offshore entities, all under the Wylys' control, solely to avoid making required Commission filings.
The complaint alleges that French utilized his roles as the Wylys' lawyer and fellow director on three of the four Issuers' boards to cover the Wylys' scheme with a false cloak of legality that was essential both to its concealment and to its execution. The complaint further alleges that French's assistance to the Wylys' scheme continued during French's tenure as Scottish Re's Chairman, when the Wylys, who had left Scottish Re's board, continued covertly to hold more than 5% of its outstanding stock. According to the complaint, French also established offshore entities of his own, which he used to control and to trade Issuer Securities without disclosing his own ownership or trading as required by law.
The complaint alleges that for his part, Schaufele used his position as the Wylys' stockbroker to conceal from and affirmatively misrepresent to his brokerage firm superiors the Wylys' control over the Issuer Securities held in their Offshore System. Schaufele also directly committed an insider trading violation, according to the complaint, by trading in Sterling Software common stock through his wife's accounts based upon non-public material information he learned through his employment at Lehman Brothers, i.e. the Wylys' intent to make a massive, bullish and undisclosed transaction in Sterling Software offshore.
The complaint charges that all four defendants violated, and that French and Schaufele also aided and abetted the Wylys' violations of, Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder. The complaint further charges the Wylys and French with violations of Section 17(a) of the Securities Act of 1933 (Securities Act) as well as Exchange Act Sections 13(d), 14(a) and 16(a) and Rules 13d-1 13d-2, 14a-3, 14a-9, 16a-2 and 16a-3 thereunder. The complaint further charges the Wylys with violations of Securities Act Sections 5(a) and 5(c); and charges the Wylys and French with aiding and abetting (i) the Issuers' violations of Exchange Act Sections 13(a) and 14(a) and Rules 13a-1, 14a-3 and 14a-9 thereunder and (ii) three of the Wylys' offshore trustees' violations of Exchange Act Section 13(d) and Rules 13d-1 and 13d-2 thereunder. Finally, the complaint charges French with aiding and abetting the Wylys' violations of Exchange Act Sections 13(d), 14(a) and 16(a) and Rules 13d-1, 13d-2, 14a-3 and 14a-9 thereunder. The SEC seeks injunctions against future violations of the relevant statutes and rules, disgorgement of unlawful profits with prejudgment interest, civil monetary penalties, and officer and director bars against the Wylys and French.
The Commission acknowledges the assistance of the Isle of Man Attorney General's Office, the Cayman Islands Monetary Authority and the New York County District Attorney's Office. [SEC v. Samuel E. Wyly et al., Civil Action No.10-CV-5760 (SAS) (S.D.N.Y.)] (LR-21607)
Federal Judge Enters Final Judgment Against Matthew W. Hardey in Fraudulent Accounting Scheme
On July 29, 2010, the Honorable Martin L.C. Feldman, United States District Judge for the Eastern District of Louisiana entered a final judgment of permanent injunction against defendant Matthew W. Hardey, a Louisiana resident and the former chief financial officer for Newpark Resources, Inc. (Newpark), an oil and gas company based in Houston, Texas. Hardey was charged in the complaint along with another Newpark principal and a third party vendor of Newpark with violations of the federal securities laws. The final judgment permanently enjoined Hardey from future violations of Section 17(a) of the Securities Act of 1933 (Securities Act), Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 10b-5, 13b2-1 and 13b2-2 thereunder and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, 13a-13 and 13a-14 thereunder. The final judgment also required Hardey to pay a civil penalty of $75,000, and imposed a bar prohibiting him from serving as an officer or director of a public company. Hardey consented to the entry of the order without admitting or denying the allegations of the Commission's complaint.
According to the Commission's Complaint, Hardey, a former Chief Financial Officer for Newpark, and L. Cyrus DeBlanc, a former Chief Financial Officer for Newpark subsidiary Soloco LLC, conspired with Quality Mat president Joe E. Penland to engage in a fraudulent accounting scheme that allowed Newpark in fiscal year 2003 to avoid writing off approximately $4.2 million in aging debt. As a result, Newpark reported approximately $500,000 of net income instead of a significant loss for that fiscal year. The Commission's Complaint alleged that, in 2002 and 2003, Newpark recognized $4.2 million in revenue based on sales of its primary product - industrial mats used to lay temporary roads at drilling sites - to Quality Mat and another vendor, Easy Frac. The Complaint alleged that neither vendor had made any payment on the sales through the end of 2003, and that Hardey, DeBlanc and Penland devised and executed a scheme to funnel money to Quality Mat and Easy Frac through sham transactions that would then allow the vendors to pay their debts to Newpark.
According to the Complaint, one of the sham transactions took place in 2004 and involved Dura-Base Nevada, LLC and Dura-Base de Mexico, two Newpark subsidiaries created to begin mat rentals in Mexico. The Complaint asserted that Newpark purchased the entire initial inventory of mats for the Dura-Base business from Quality Mat, and that the decision to purchase the approximately 6,175 mats from Quality Mat was a pretext meant to give the appearance of a legitimate business transaction to Newpark's repurchase, at the original sales price, of 1,500 mats sold to Quality Mat in 2002 and 600 mats sold to Easy Frac in 2003. The Complaint claimed that, in an attempt to perpetuate the pretext, Hardey also misled Newpark's auditors about the basis for buying the Dura-Base inventory from Quality Mat by falsely claiming that Quality Mat had contractual rights in Mexico that Newpark would have to buy in order for the Dura-Base venture to go forward. According to the Complaint, this ruse was necessary to allow Newpark to buy back the mats at the original sales price without suffering any adverse accounting consequences. Under this scheme, Newpark could account for the repurchases as if they had taken place at Newpark's manufacturing cost, but still pay Quality Mat the original purchase price for the mats by assigning the difference in value to the intangible asset allegedly created by the repurchase of Quality Mat's contract rights.
The Complaint alleged that the other sham transaction, which took place during 2004 and 2005, involved Quality Mat sending fictitious invoices to Newpark purportedly for bulk lumber sales. According to the Complaint, in early 2004, Penland agreed to convert Quality Mat's outstanding debt from the 2002 sales to notes receivable. One of the notes required monthly payments of $52,409, which Quality Mat began making in March 2004. Between May 2004 and July 2005, the bulk lumber invoices, which were sent monthly, averaged $52,409, but there were no purchase orders or delivery tickets backing up the alleged sale. The Complaint alleged that Hardey, DeBlanc and Penland devised this scheme to provide Quality Mat with funds to continue making payments on this note, thus allowing Newpark to keep the debt on its books. Penland was permanently enjoined from further violations of the federal securities laws in a final judgment entered against him on Oct. 2, 2009. That judgment also required that Penland pay a $70,000 civil penalty. DeBlanc was permanently enjoined from further violations of the federal securities laws in a final judgment entered against him on May 14, 2010. As with the final judgment against Hardey, the final judgment against DeBlanc also imposed an officer and director bar against him and required DeBlanc to pay a $75,000 civil penalty.
See also: LR-21236 (Oct. 5, 2009); LR-21137 (July 16, 2009). [SEC v. Matthew W. Hardey, L. Cyrus DeBlanc, and Joe E. Penland, Civil Action No. 09-cv-4414 (E.D. La.)] (LR-21608)
INVESTMENT COMPANY ACT RELEASES
UBS Series Trust
An order has been issued under Section 8(f) of the Investment Company Act declaring that UBS Series Trust has ceased to be an investment company. (Rel. IC-29371 - July 29)
AXA Equitable Life Insurance Company, et al.
An order has been issued approving an application filed by AXA Equitable Life Insurance Company, Separate Account 45 of AXA Equitable, Separate Account 49 of AXA Equitable, Separate Account A of AXA Equitable, Separate Account FP of AXA Equitable, MONY Life Insurance Company of America, and MONY America Variable Account L (collectively, Section 26 Applicants), Separate Account 65 of AXA Equitable (Separate Account 65), and the AXA Premier VIP Trust (Trust) (Separate Account 65 and the Trust, together with the Section 26 Applicants, the "Section 17 Applicants"). The Section 26 Applicants have been authorized under Section 26(c) of the Investment Company Act to substitute securities issued by a certain series of the Trust for shares of a securities issued by another series of the Trust. The Section 17 Applicants have also been granted an exemption from Section 17(a) of the Act in order to engage in certain in-kind transactions in connection with the substitution. (Rel. IC-29372 - July 29)
Notices of Deregistration under the Investment Company Act
For the month of July 2010, a notice has been issued giving interested persons until Aug. 24, 2010, to request a hearing on any of the following applications for an order under Section 8(f) of the Investment Company Act declaring that the applicant has ceased to be an investment company:
(Rel. IC-29373 - July 29)
Proposed Rule Change
NYSE Arca filed a proposed rule change (SR-NYSEArca-2010-68) under Section 19(b)(1) of the Securities Exchange Act of 1934 relating to listing and trading of the PIMCO Build America Bond Strategy Fund. Publication is expected in the Federal Register during the week of August 2. (Rel. 34-62585)
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