Change in the Meeting: Additional Item
The following item has been added to the Thursday, Aug. 26, 2010, Closed Meeting agenda: consideration of amicus participation.
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 Escala Group, Inc., Gregory Manning, Larry Lee Crawford, CPA
The Securities and Exchange Commission announced today that on Aug. 23, 2010, the Honorable Denise Cote of the United States District Court for the Southern District of New York entered a final judgment against Gregory Manning (Manning) in SEC v. Escala Group, Inc., et al., 09-CV-2646, filed on March 23, 2009, and amended on Aug. 28, 2009. (LR-20965)
The final judgment to which Manning consented without admitting or denying the allegations in the complaint permanently enjoins Manning him from violation of Section 10(b) of the Exchange Act and Rule 10b-5; violation of Section 13(b)(5) of the Exchange Act and Exchange Act Rules 13b2-1 and 13b2-2; aiding and abetting Escala Group Inc's violation of Exchange Act Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B), and Rules 12b-20, 13a-1, and13a-13; and violation of Exchange Act Rule 13a-14. It also orders Manning to pay $669,489 in disgorgement, prejudgment interest and penalties, and bars Manning from serving as an officer or director of a public company for 10 years. [SEC v. Escala Group, Inc., Gregory Manning, and Larry Lee Crawford, CPA, Civil Action No. 09 CV 2646 (S.D.N.Y.)] (LR-21630; AAE Rel. 3174)
In the Matter of Robert T. Harvey
On Aug. 24, 2010, the Commission issued an Order Instituting Administrative Proceedings Pursuant to Section 203(f) of the Investment Advisers Act of 1940, Making Findings, and Imposing Remedial Sanctions (Order) against Robert T. Harvey. The Order finds that on July 29, 2010, a judgment was entered against Robert T. Harvey, permanently enjoining him, by consent, from future violations of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and from violations of Sections 206(1) and 206(2) of the Advisers Act, in the civil action entitled Securities and Exchange Commission v. Jeanne M. Rowzee, et al., Civil Action Number, SACV 08-1025 DOC (ANx) in the United States District Court for the Central District of California, Southern Division.
The Order further finds that the Commission's complaint alleged, among other things, that, in connection with the fraudulent offer and sale of $52.7 million of securities to approximately 150 investors, Harvey falsely represented that the investors' funds would be used to purchase PIPE investments which were described as "a private investment being converted into a public entity." The complaint also alleged that Harvey represented that Jeanne M. Rowzee was an experienced securities attorney who had access to lucrative private investment opportunities through brokers that she controlled and promised returns of 19% to 54% within 12 to 16 weeks. The complaint also alleged that Harvey began offering Harvest Income membership interests in June 2005, purportedly in reliance on the private placement exemption under the Securities Act and the safe harbor provisions of Regulation D. The complaint also alleged that Harvey directed investors to wire their funds to a Harvest Income bank account that he controlled and told investors that the funds would be used to invest in PIPEs. The complaint also alleged that Harvey was an investment adviser to Harvest Income and that he gave prospective investors a copy of the Harvest Income operating agreement, which identified him as the company's sole manager and gave him complete control over the company's business, including its investment decisions. The complaint also alleged that Harvey received compensation for his investment adviser services and that under the terms of the operating agreement, he received 25% of the returns paid to investors, plus expenses. The complaint also alleged that Harvey advised Harvest Income as to the purported value of the PIPEs and the advisability of investing in them. The complaint also alleged that Harvey created a PowerPoint presentation which he gave to some prospective investors in which, among other things, he represented to investors that he, Rowzee, and a certified public accountant constituted a "loan committee" that evaluated every new potential PIPE for Harvest Income. The complaint also alleged that Harvey provided advice to Harvest Income on a regular basis for about 18 months and that he had investors complete an "Investor Suitability Questionnaire," which asked about their net worth, annual income, and investment experience. The complaint also alleged that at least 13 of the Harvest Income investors were unsophisticated and unaccredited as defined in Rule 501 of Regulation D under the Securities Act, 17 CFR § 230.501. The complaint further alleged that Harvey sold unregistered securities.
Based on the above, the Order bars Harvey from association with any investment adviser. Harvey 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 him, the subject matter of these proceedings, and the entry of the judgment in the civil injunctive action, which he admitted. (Rel. IA-3072; File No. 3-14017)
In the Matter of Stephen Burke, CPA
On Aug. 24, 2010, the Commission issued an Order Instituting Public Administrative and Cease-and-Desist Proceedings Pursuant to Sections 4C and 21C of the Securities Exchange Act of 1934 and Rule 102(e) of the Commission's Rules of Practice, Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order (Order) against Stephen Burke, CPA, age 61, of Lake Bluff, Illinois. Burke consented to the issuance of the Order without admitting or denying the Commission's findings. Burke also consented to pay a civil penalty of $25,000 in a civil injunctive action that was previously filed by the Commission without admitting or denying the allegations in the Commission's complaint. Securities and Exchange Commission v. Louis E. Rivelli, et al., Civil Action No. 05-cv-01039 (D.Colo) (June 7, 2005).
The Order finds that from January 2000 through September 2002, Fischer Imaging Corporation (Fischer) materially misstated revenue and net income in its financial statements as a result of, among other things, Fischer's improper recognition of revenue from equipment orders upon shipment to warehouses controlled by Fischer. Burke was hired as a consultant by Fischer's board of directors in March 2002, and received information regarding Fischer's improper recognition of revenue shortly thereafter. After Burke became Fischer's CFO in October 2002, Burke signed an amended quarterly filing for Fischer's second quarter of 2002 and Fischer's quarterly filing for the third quarter of 2002 without taking sufficient steps to determine whether Fischer's revenue recognition practices were appropriate. Further, despite his knowledge of Fischer's shipments to storage facilities, Burke did not take sufficient steps to implement a system of internal accounting controls to ensure that Fischer's revenue and net income were properly reported. Burke also made or caused to be made false or misleading statements to Fischer's external auditors regarding Fischer's revenue recognition practices and provided false certifications in connection with Fischer's amended filing for the second quarter of 2002 and Fischer's quarterly filing for the third quarter of 2002.
Based on the above, the Order directs Burke to cease and desist from committing or causing any violations and any future violations of Section 13(b)(5) of the Exchange Act and Rules 13b2-1, 13b2-2, and 13a-14 promulgated therreunder; and from causing any violations and any future violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act, and Rules 12b-20 and 13a-13 promulgated thereunder. The Order also denies Burke the privilege of appearing or practicing before the Commission as an accountant. After 36 months from the date of this order, Burke may request that the Commission consider his reinstatement to resume appearing or practicing before the Commission.
In 2004, the Commission imposed a cease-and-desist order against Fischer for violations of the anti-fraud, reporting, internal controls and books and records provisions of the federal securities laws resulting from Fischer's improper revenue recognition and other accounting misstatements. In the Matter of Fischer Imaging Corp., Exchange Act Rel. No. 34-50663 (Nov. 15, 2004). (Rel. 34-62761; AAE Rel. 3175; File No. 3-14018)
INVESTMENT COMPANY ACT RELEASES
Virtus Opportunities Trust, et al.
An order has been issued on an application filed by Virtus Opportunities Trust and Virtus Investment Advisers, Inc. under Section 12(d)(1)(J) of the Investment Company Act for an exemption from Sections 12(d)(1)(A) and (B) of the Act and under Sections 6(c) and 17(b) of the Act for an exemption from Section 17(a) of the Act. The order amends and supersedes a prior order that permits certain registered open-end management investment companies to acquire shares of other registered open-end management investment companies and unit investment trusts both within and outside the same group of investment companies. The amended order subjects applicants to different conditions than the prior order and deletes a condition of the prior order. (Rel. IC-29383 - August 23)
Immediate Effectiveness of Proposed Rule Changes
A proposed rule change (SR-NASDAQ-2010-105) filed by The NASDAQ Stock Market relating to NASDAQ Options Market fees and rebates 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 23. (Rel. 34-62754)
A proposed rule change filed by the Chicago Board Options Exchange to amend the CBOE Stock Exchange fee schedule to change the transaction fees for 24 securities (SR-CBOE-2010-075) 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 23. (Rel. 34-62758)
Approval of Proposed Rule Change
The Commission approved a proposed rule change filed by the Municipal Securities Rulemaking Board (SR-MSRB-2010-02) under Section 19(b)(2) of the Securities Exchange Act of 1934, as modified by Amendment No. 1 thereto, 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. Publication is expected in the Federal Register during the week of August 23. (Rel. 34-62755)
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