SEC Announces Fair Fund Distribution to Investors Harmed by Market Timing in Strong Mutual Funds
The Securities and Exchange Commission announces the first in a series of Fair Fund distributions that will return the approximately $140 million Fair Fund to injured investors in the Strong family of mutual funds as part of the SEC's 2004 settlement with former Menomonee Falls, Wisconsin, investment advisor Strong Capital Management, Inc. (SCM), SCM founder and majority owner Richard S. Strong, and others (Respondents), for permitting undisclosed market timing in certain Strong funds. The first distribution of more than $83 million will go to more than 458,000 investors.
The SEC brought and settled public administrative and cease-and-desist proceedings in 2004 against Respondents. Without admitting or denying the SEC's findings, except as to jurisdiction over them and the subject matter of the proceedings, Respondents consented to an SEC Order charging anti-fraud violations and requiring them to pay more than $140 million in disgorgement and civil penalties.
The Fair Fund Administrator responsible for the distribution is PNC Global Investment Servicing (PNCGIS). Investor questions regarding the distribution may be directed to PNCGIS at (800) 555-7718. Information regarding the distribution, including the names of the specific mutual funds affected by the distribution, can also be obtained at http://www.strongsettlement.com.
SEC Announces $63 Million Fair Fund Distribution to Harmed Investors in Federated Mutual Funds
The Securities and Exchange Commission today announced the Fair Fund distribution of more than $63 million to more than 530,000 investors who were harmed by market timing and late trading in certain Federated mutual funds. The distribution marks the first of two disbursements that will total approximately $77 million.
The Fair Fund resulted from a prior SEC enforcement action charging three affiliates of Federated Investors, Inc. (registered investment advisor Federated Investment Management Company, registered broker-dealer Federated Securities Corp., and formerly registered transfer agent Federated Shareholder Services Company) with violations of the federal securities laws in connection with market timing and late trading of Federated mutual funds.
The Sarbanes-Oxley Act 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 Sarbanes-Oxley, only disgorgement could be returned to investors.
The Commission issued an order approving the Federated Distribution Plan on Jan. 28, 2010. Investors can obtain additional information about the distribution process, including a copy of the Distribution Plan, by visiting http://www.federatedfairfundsettlement.com/start.asp or by calling the Fund Administrator, Boston Financial Data Services, Inc. (BFDS), at (888) 850-3536.
Open Meeting - Wednesday, August 11, 2010 - 9:00 a.m.
The Joint CFTC-SEC Advisory Committee on Emerging Regulatory Issues will hold an Open Meeting on Wednesday, Aug. 11, 2010, in the first floor hearing room of the CFTC's Washington, DC headquarters, which is located at Three Lafayette Centre, 1155 21st St., NW.
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 be open at 8 a.m. Visitors will be subject to security checks.
The agenda for the meeting will include: (i) committee organizational matters; and (ii) hearing two industry panels presenting views and information regarding the market events of May 6, 2010.
For further information, please contact the Office of the Secretary at (202) 551-5400.
Commission Revokes Registration of Securities of American Energy Services, Inc. for Failure to Make Required Periodic Filings
On Aug. 4, 2010, the Commission revoked the registration of each class of registered securities of American Energy Services, Inc. (AEYS) 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, AEYS 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 American Energy Services, Inc. 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-13 thereunder and revoking the registration of each class of AEYS's securities pursuant to Section 12(j) of the Exchange Act. This Order settled the charges brought against AEYS in In the Matter of American Energy Services, Inc., et al., Administrative Proceeding File No. 3-13940.
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 American Energy Services, Inc., et al., Administrative Proceeding File No. 3-13940, Exchange Act Release No. 62292 (June 15, 2010). (Rel. 34-62633; File No. 3-13940)
In the Matter of Shauntel A. McCoy
On Aug. 4, 2010, the Commission issued an Order Instituting Administrative Proceedings Pursuant to Section 15(b) of the Securities Exchange Act of 1934, Making Findings, and Imposing Remedial Sanctions (Order) against Shauntel A. McCoy. The Order finds that on July 12, 2010 a judgment was entered against Shauntel A. McCoy, permanently enjoining her from future violations of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, Sections 10(b) and 15(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, in the civil action entitled Securities and Exchange Commission v. Sun Empire, LLC, et al., Civil Action Number, SACV09-399 DOC (RNBx), in the United States District Court for the Central District of California.
The Order further finds that the Commission's complaint alleged that McCoy participated in unregistered offers and sales of securities in Sun Empire, LLC (Sun Empire) and Empire Capital Asset Management (ECAM). In addition, the Order finds that the complaint alleged that McCoy solicited investors from California and Nevada through a multi-level marketing scheme operated from an Anaheim, California hotel. Additionally, the Order finds that the complaint alleged that McCoy made false and misleading statements in the unregistered offer and sale of Sun Empire and ECAM securities, and otherwise engaged in a variety of conduct which operated as a fraud and deceit on investors.
Based on the above, the Order bars McCoy from association with any broker or dealer. McCoy consented to the issuance of the Order without admitting or denying any of the findings in the Order except as to the Commission's jurisdiction over her, the subject matter of these proceedings, and the entry of the judgment in the civil injunctive action, which she admitted. (Rel. 34-62634; File No. 3-13991)
In the Matter of Aamer Abdullah
On Aug. 4, 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, Making Findings, and Imposing Remedial Sanctions (Order) against Aamer Abdullah. The Order finds that Abdullah was a managing director at ICP Asset Management, LLC (ICP), helping oversee the management of four collateralized debt obligations (CDOs) for which ICP served as collateral manager. On July 8, 2010 (as amended July 19, 2010), a judgment was entered by consent against Abdullah in the civil action entitled Securities and Exchange Commission v. Aamer Abdullah, No. 10 Civ. 4957 in the United States District Court for the Southern District of New York, permanently enjoining Abdullah from violating, or from aiding and abetting another person's violations of, Section 17(a) of the Securities Act of 1933, Sections 10(b) and 15(c)(1)(A) of the Exchange Act and Rules 10b-3 and 10b-5 thereunder, and Sections 206(1), 206(2), and 206(4) of the Advisers Act and Rule 206(4)-8 thereunder. The Commission's complaint against Abdullah alleged that, while he worked at ICP and in connection with the management of the CDOs, Abdullah violated his fiduciary duties and his obligations under the CDOs' governing documents by failing to conduct all trades for the CDOs on an arms' length basis and failing to manage the CDOs in a commercially reasonable manner.
Based on the above, the Order bars Aamer Abdullah from association with any broker, dealer, or investment adviser. Aamer Abdullah consented to the issuance of the Order without admitting or denying any of the findings, except that he admitted the entry of the final judgment. (Rel. 34-62635; IA-3064; File No. 3-13992)
Order Setting Disgorgement Hearing for September 14, 2010, and Inviting Investors to Attend Entered by District Court
The Securities and Exchange Commission announced that on Aug. 3, 2010, Honorable James F. Holderman entered an order in the U.S. District Court for the Northern District of Illinois setting a disgorgement hearing in the case for 10:00 a.m. on Tuesday, Sept. 14, 2010, in Courtroom 2541 at 219 S. Dearborn Street, Chicago, Illinois 60604.
The Court's Order further invited all investors to attend the hearing.
Previously, on Oct. 27, 2009, the Court entered a permanent injunction order enjoining Randy M. Cho from violating the antifraud provisions of the Securities Act of 1933 [Section 17(a)], the Securities Exchange Act of 1934 [Section 10(b) and Rule 10b-5 thereunder], and the Investment Advisers Act of 1940 [Sections 206(1) and 206(2)] (Permanent Injunction Order). Cho consented to the entry of the Permanent Injunction Order without admitting or denying the allegations in the complaint. The asset freeze order entered by the Court on Oct. 7, 2009, freezing Cho's assets continues.
First filed on Oct. 7, 2009, in an emergency TRO action, the Commission's complaint alleges that, since at least 2001, Cho engaged in a fraudulent scheme to misappropriate investors' funds for his personal use and to repay other investors, raising at least $3.7 million from at least 45 investors in four states. The complaint alleges that Cho falsely represented to investors that he would pool their funds to invest in shares of specific well-known companies in anticipation of expected initial public offerings of those companies, including Centerpoint, AOL/Time Warner, Inc., Google, Inc., Facebook, Inc. and Rosetta Stone, Inc. The complaint alleges that, instead of purchasing these shares for investors, Cho used investor funds for personal trading, the personal expenses of himself and his family, and also operated a Ponzi scheme, using new investor funds to repay existing investors. The complaint alleges that throughout the scheme, Cho falsely told investors that he had worked at Goldman Sachs, still had an account there and made his investments through the firm, and/or that Goldman Sachs still considered him a preferred client. The complaint further alleges that Cho told some investors that additional funds would be needed to satisfy a U.S. tax liability in connection with their supposed purchase of Google and Rosetta Stone shares, when there was no tax liability and when the shares had not even been purchased for the investors. [SEC v. Randy M. Cho, Civil Case No. 09-CV-6261, USDC, N.D.Ill.] (LR-21611)
SEC Charges Former Deloitte Partner and Son With Insider Trading
The Securities and Exchange Commission today charged a former Deloitte and Touche LLP partner and his son with insider trading in the securities of several of the firm's audit clients.
The SEC alleges that Thomas P. Flanagan of Chicago traded in the securities of Deloitte clients, often while serving as a liaison between those companies' management teams and Deloitte's audit engagement teams. In this role, Flanagan had access to advance earnings results and other nonpublic information from Deloitte's audit engagements with Best Buy, Sears, and Walgreens as well as the firm's consulting engagement with Motorola. Flanagan made trades in the securities of these and other companies while in possession of the confidential information, and also tipped his son Patrick T. Flanagan who then traded on the basis of the nonpublic information.
The Flanagans agreed to pay more than $1.1 million to settle the SEC's charges.
According to the SEC's complaint, filed in the U.S. District Court in Chicago, Thomas Flanagan worked at Deloitte for 38 years and rose to the position of Vice Chairman of Clients and Markets. The SEC alleges that Flanagan committed insider trading on nine occasions between 2005 and 2008 by trading in the securities of multiple Deloitte clients and a company acquired by a Deloitte client. Flanagan was in possession of nonpublic information about those clients that he learned through his duties as a Deloitte partner, including such material market-moving events as earnings results, earnings guidance, and acquisitions. Flanagan's illegal trading resulted in profits of more than $430,000. On four occasions, Flanagan relayed the nonpublic information to his son, who traded based on that information for illegal profits of more than $57,000.
In addition to the court-filed complaint alleging illegal insider trading, the SEC also instituted administrative proceedings against Thomas Flanagan, finding that he violated the SEC's auditor independence rules on 71 occasions between 2003 and 2008 by trading in the securities of nine Deloitte audit clients. An accountant is not independent if he owns or controls securities in the clients that he audits. The SEC's settled administrative order finds that while Thomas Flanagan owned or controlled client securities, Deloitte issued audit reports to the clients stating that the financial statements contained in the reports had been audited by an independent auditor. However, Deloitte was not independent due to Flanagan's ownership and control of the audit clients' securities. As a result, the SEC's administrative order finds that Thomas Flanagan caused and willfully aided and abetted Deloitte's violations of the SEC's auditor independence rules under Regulation S-X. Flanagan also caused and willfully aided and abetted the clients' violations of the reporting and proxy provisions of the Securities Exchange Act of 1934.
As alleged in the SEC's complaint, Thomas Flanagan concealed his trades in the securities of Deloitte's clients and circumvented Deloitte's independence controls. According to the SEC's complaint, he failed to report the prohibited trades to Deloitte, lied to Deloitte about his compliance with its independence policies, and provided false information to Deloitte's personal income tax preparers about the identity of the companies whose securities he traded.
As a result of their conduct, the SEC's complaint charged Thomas and Patrick Flanagan with violations of Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3. The SEC's administrative action found that Thomas Flanagan caused and willfully aided and abetted Deloitte's violations of Rule 2-02(b)(1) of Regulation S-X, and caused and willfully aided and abetted the clients' violations of Sections 13(a) and 14(a) of the Exchange Act, and Rules 13a-1, 13a-13, and 14a-3 thereunder.
Without admitting or denying the SEC's allegations in the complaint and the findings in the administrative order, Thomas Flanagan consented to the entry of an order of permanent injunction, disgorgement with prejudgment interest of $557,158, a penalty of $493,884, and a denial of the privilege of appearing or practicing before the SEC as an accountant. Without admitting or denying the SEC's allegations in the complaint, Patrick Flanagan consented to the entry of an order of permanent injunction, disgorgement with prejudgment interest of $65,614, and a penalty of $57,656.
The SEC acknowledges the assistance of FINRA and the Options Regulatory Surveillance Authority in this investigation. [SEC v. Thomas P. Flanagan and Patrick T. Flanagan, Civil Action No. 10 cv 4885 (N.D. Ill.] (LR-21612, AAE Rel. 3164); In the Matter of Thomas P. Flanagan, CPA, (Rels. 34-62636, AAE Rel. 3163, File No. 3-13993)
INVESTMENT COMPANY ACT RELEASES
Kohlberg Capital Corporation
A notice has been issued giving interested persons until Aug. 30, 2010, to request a hearing on an application filed by Kohlberg Capital Corporation (Kohlberg Capital) for an order under Section 6(c) of the Investment Company Act for an exemption from Sections 23(a), 23(b) and 63 of the Act, and under Sections 57(a)(4) and 57(i) of the Act and Rule 17d-1 under the Act permitting certain joint transactions otherwise prohibited by Section 57(a)(4) of the Act. The order would permit Kohlberg Capital to issue restricted shares of its common stock to its directors who are not also employees or officers of Kohlberg Capital under the terms of its 2010 Amended and Restated Non-Employee Director Plan. (Rel. IC-29376 -August 3)
Immediate Effectiveness of Proposed Rule Changes
A proposed rule change filed by NASDAQ OMX BX (SR-BX-2010-052) to add 75 classes to the Penny Pilot Program 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 August 2. (Rel. 34-62615)
A proposed rule change (SR-Phlx-2010-100) filed by NASDAQ OMX PHLX relating to the Options Regulatory Fee 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 August 2. (Rel. 34-62619)
Proposed Rule Change
The Commission issued notice of a proposed rule change submitted by the Financial Industry Regulatory Authority (SR-FINRA-2010-034) pursuant to Rule 19b-4 under the Securities Exchange Act of 1934 to adopt FINRA Rule 4530 (Reporting Requirements) in the consolidated FINRA rulebook. Publication is expected in the Federal Register during the week of August 2. (Rel. 34-62621)
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