SEC Proposes Measures to Enhance Short-Term Borrowing Disclosure to Investors
The Securities and Exchange Commission today voted unanimously to propose measures that would require public companies to disclose additional information to investors about their short-term borrowing arrangements.
The SEC's proposal would shed a greater light on a company's short-term borrowing practices, including what some refer to as balance sheet "window-dressing." The proposed rules are aimed to enable investors to better understand whether amounts of short-term borrowings reported at the end of reporting periods are consistent with amounts outstanding throughout the reporting periods.
"Under these proposed rules, investors would have better information about a company's financing activities during the course of a reporting period - not just a period-end snapshot," said SEC Chairman Mary L. Schapiro. "Investors would be better able to evaluate the company's ongoing liquidity and leverage risks."
Many financial institutions and other companies engage in short-term borrowing in order to fund operations. These financing arrangements can range from commercial paper, repurchase agreements, letters of credit, promissory notes and factoring. They generally mature in a year or less.
The additional short-term borrowing disclosure information required under the proposed rules would be presented in the Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) section of a company's quarterly and annual reports.
The Commission also voted to issue an interpretive release that will provide guidance about existing requirements for MD&A disclosure about liquidity and funding.
Public comments on the proposed rules should be received by the Commission within 60 days after its publication in the Federal Register. (Press Rel. 2010-169)
David Slaine Settles SEC Insider Trading Charges
The Securities and Exchange Commission announced that today, The Honorable Deborah A. Batts of the United States District Court for the Southern District of New York, entered a final judgment against David Slaine in SEC v. David R. Slaine, 10-CV-754 (S.D.N.Y.), an insider trading case the Commission filed on Feb. 2, 2010. The Commission charged Slaine, a former hedge fund portfolio manager at DSJ International Resources Ltd. (d/b/a Chelsey Capital), with violations of the antifraud provisions of the federal securities laws. The Commission alleged that Slaine used inside information tipped by a former executive at UBS Securities LLC (UBS) to trade ahead of upcoming UBS analyst recommendations for Chelsey Capital and in his personal account.
To settle the Commission's charges, Slaine consented to the entry of a final judgment that: (i) permanently enjoins him from future violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Exchange Act Rule 10b-5; and (ii) orders him to pay disgorgement of $836,385. In a related Commission administrative proceeding, Slaine consented to the entry of a Commission order barring him from association with any investment adviser. Based on Slaine's cooperation with the Commission no civil monetary penalties were imposed. In a parallel criminal case before the United States District Court for the Southern District of New York titled, United States v. David Slaine, 09-CR-1222 (RJH), Slaine previously pled guilty to charges of securities fraud and conspiracy to commit securities fraud.
The Commission previously filed insider trading charges against Chelsey Capital and other defendants in connection with this insider trading scheme. See SEC v. Guttenberg, et al., No. 07-CV-1774 (S.D.N.Y.) (PKC)/Lit. Rel. 20022. Chelsey Capital and these other defendants previously entered into settlements with the Commission, and final judgments have been entered against them. Without admitting or denying liability, Chelsey Capital consented to a final judgment that ordered permanent injunctive relief, disgorgement of $3,637,548, prejudgment interest of $1,626,344, and a $3,637,548 civil penalty. [SEC v. David R. Slaine, Civil Action No. 10-CV-754 (S.D.N.Y.) (DAB)] (LR-21653); (Rel. IA-3084; File No. 3-14053)
L. Rex Andersen, CPA, Sanctioned
L. Rex Andersen, CPA (Andersen), has been permanently disqualified from appearing or practicing as an accountant before the Securities and Exchange Commission. The sanction was ordered in an administrative proceeding before an administrative law judge, following a court-ordered injunction against him. In May 2010, a court found he had violated the antifraud and reporting provisions of the federal securities laws and enjoined him from further violations. The wrongdoing that underlies his injunction involved Andersen's audits of Exotics.com, Inc., formerly known as Hardrock Mines, Inc. (Initial Decision No. 404; File No. 3-13935)
In the Matter Appiant Technologies, Inc.
An Administrative Law Judge has issued an Order Making Findings and Revoking Registrations by Default as to Five Respondents (Default Order) in Appiant Technologies, Inc., Administrative Proceeding No. 3-13998. The Order Instituting Proceedings (OIP) alleged that six Respondents failed repeatedly to file required annual and quarterly reports while their securities were registered with the Securities and Exchange Commission. The Default Order finds these allegations to be true as to five Respondents. It revokes the registrations of each class of registered securities of Appiant Technologies, Inc., FutureLink Corp., STM Wireless, Inc., Supermail International, Inc. (n/k/a PBHG, Inc.), and Women First HealthCare, Inc., pursuant to Section 12(j) of the Securities Exchange Act of 1934.
The proceeding remains ongoing as to Cobalis Corp., the sixth Respondent named in the OIP. (Rel. 34-62926; File No. 3-13998)
In the Matter of Daxor Corporation
On September 17, the Commission issued an Order Instituting Cease-and-Desist Proceedings Pursuant to Section 9(f) of the Investment Company Act of 1940 (Order) against Daxor Corporation (Daxor) for illegally operating as an unregistered investment company.
In the Order, the Division of Enforcement alleges that Daxor, a public company, is, and has been for many years, an investment company as defined by Section 3(a)(1)(C) of the Investment Company Act of 1940 (the Act), because it engages in the business of investing and trading in securities and 40% or more of its total assets (other than Government securities and cash items) consist of investment securities. Although it claims to be a medical device manufacturing company and its principal product has been developed and available for sale since at least 1998, Daxor has never realized an operating profit or even significant operating revenue. Instead, Daxor has allegedly sustained itself on the considerable income generated by its investment securities, which, as of June 30, 2010, constituted 96% of the company's assets. The Division further alleges that over the last five and a half years, Daxor's investment securities have consistently constituted more than 90% of its assets and its net investment income has amounted to more than 750% of its gross operating revenues. The Division also alleges that Daxor is not exempted or excluded from the requirements of the Investment Company Act but it has never registered with the Commission as an investment company and thus has violated Section 7(a) of the Act.
A hearing will be scheduled before an Administrative Law judge to determine whether the allegations in the Order are true, and to afford Daxor an opportunity to dispute the allegations, and to determine whether a cease-and-desist order pursuant to Section 9(f) of the Act should be entered against Daxor. The Commission ordered that the Administrative Law Judge in this proceeding issue an initial decision not later than 300 days from the date of service of the order instituting proceedings. (Rel. IC-29417; File No. 3-14055)
Lambros D. Ballas Sanctioned
Lambros D. Ballas (Ballas), of Huntington, New York, has been barred from association with any broker or dealer. The sanction was ordered in an administrative proceeding before an administrative law judge, following a court-ordered injunction against him. In July 2010, Ballas was enjoined from violating the antifraud provisions of the federal securities laws based on his involvement in a fraudulent scheme to manipulate the stock prices of multiple publicly traded companies.
Ballas arranged for the distribution of phony press releases involving major public companies, such as Google, Microsoft, and Walt Disney, and then posed as an investor on Yahoo! Inc. Internet message boards providing links to the bogus releases he had created and disseminated. In the case of one company he touted, Ballas bought 5,000 shares of its stock before issuing a phony press release that caused the stock price to increase nearly 80% within a few hours of the issuance of the phony release. During the time in which he engaged in this conduct, Ballas was a registered representative with a broker-dealer registered with the Commission. (Rel. 34-62931; File No. 3-13981)
District Court Enters Judgment Order Setting Disgorgement, Prejudgment Interest and a Civil Penalty Against Randy M. Cho
The Commission announced that on Sept.14, 2010, The Honorable James F. Holderman entered a Judgment Order against Randy M. Cho (Cho) ordering Cho to pay $7,783,767.02 in disgorgement, $289,320.08 in prejudgment interest, and a statutory civil penalty of $150,000.
Previously, on Oct. 27, 2009, the Court entered an order permanently enjoining 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. An order entered by the Court on Oct. 7, 2009, freezing Cho's assets remains in effect.
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. For further information see LR-21275, LR-21241, and LR-21611. [SEC v. Randy W. Cho, Case No. 09-CV-6261, USDC, N.D.Ill.] (LR-21654)
SEC Obtains Emergency Asset Freeze to Halt Multi-Million Dollar Entertainment Investment Fraud
On Sept. 14, 2010, the Securities and Exchange Commission filed a complaint in the United States District Court for the Central District of California against Atlanta-based LADP Acquisition, Inc. (LADP Acquisition) and its principals, Atlanta residents William A. Goldstein and Marc E. Bercoon. The SEC alleges that LADP Acquisition, Goldstein and Bercoon are perpetrating an ongoing $3.2 million entertainment investment fraud. The court entered an order halting the alleged fraud and freezing the assets of LADP Acquisition, Goldstein and Bercoon.
The SEC charged LADP Acquisition, Goldstein and Bercoon for allegedly misappropriating investor funds in a "bait-and-switch" scheme. The SEC's complaint alleges that LADP Acquisition, Goldstein and Bercoon misrepresented that investors would be investing in L.A. Digital Post, Inc. (L.A. Digital), a television and film post-production company with offices in Los Angeles and New York. The SEC's complaint alleges that prospective investors were provided offering materials listing prominent motion picture studios and television networks that had been clients of L.A. Digital and a "client list" setting forth well-known television shows and movies for which L.A. Digital provided post-production services.
In reality, according to the SEC's complaint, investors received worthless certificates representing "shares" in LADP Acquisition, an entity with no business operations. The SEC's complaint further alleges that the defendants represented to potential investors that L.A. Digital is "going public" or going to be the subject of an initial public offering (IPO) within a short period of time, such as 60 or 90 days, and that its shares will be traded on the American Stock Exchange, or some other public exchange such as the New York Stock Exchange or NASDAQ. However, no public offering of L.A. Digital stock has occurred.
The Honorable R. Gary Klausner, United States District Court Judge for the Central District of California, issued an order on Sept. 16, 2010 freezing assets of LADP Acquisition, Goldstein and Bercoon. The SEC's complaint alleges that since at least mid-2009 the defendants have raised approximately $3.2 million from more than 100 investors nationwide. The complaint further alleges that, undisclosed to investors, the defendants have misappropriated over $800,000 of the investor funds raised for their own use.
In its lawsuit, the SEC obtained an order (1) freezing the assets of LADP Acquisition, Goldstein and Bercoon; (2) preventing the destruction of documents; (3) requiring an accounting from LADP Acquisition, Goldstein and Bercoon; and (4) temporarily enjoining LADP Acquisition, Goldstein and Bercoon from future violations of the registration and antifraud provisions of the federal securities laws. The SEC also seeks preliminary and permanent injunctions, disgorgement, and civil penalties against all defendants. The court will issue a determination regarding the SEC's request for a preliminary injunction on Oct. 7, 2010 or as soon thereafter as reasonably possible. [SEC v. LADP Acquisition, Inc., et al., United States District Court for the Central District of California, Civil Action No. CV10 6835 RGK JCG] (LR-21655)
Immediate Effectiveness of Proposed Rule Changes
The Commission issued notice of filing and immediate effectiveness of proposed rule change (SR-BX-2010-063) filed by NASDAQ OMX BX under Rule 19b-4 of the Securities Exchange Act of 1934 adding the CBOE Volatility Index futures to the definition of a future reference asset in Chapter IV, Section 3(k)(i)(5). Publication is expected in the Federal Register during the week of September 20. (Rel. 34-62909)
A proposed rule change (SR-C2-2010-003), filed by C2 Options Exchange adopting certain application-related fees 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 September 20. (Rel. 34-62910)
Approval of Proposed Rule Changes
The Commission approved proposed rule changes submitted by the New York Stock Exchange (SR-NYSE-2010-53) and NYSE Amex (SR-NYSEAmex-2010-71) under Rule 19b-4 of the Securities Exchange Act of 1934 amending Rule 123C to allow exchange systems to provide order imbalance information with respect to Market At-The-Close and Marketable Limit At-The-Close interest to Floor brokers beginning two hours and until fifteen minutes prior to the scheduled close of trading on every trading day. Publication is expected in the Federal Register during the week of September 20. (Rel. 34-62923)
The Commission approved a proposed rule change submitted by the NASDAQ Stock Market (SR-NASDAQ-2010-096) under Rule 19b-4 of the Securities Exchange Act of 1934 relating to the National Quotation Dissemination Service. Publication is expected in the Federal Register during the week of September 20. (Rel. 34-62925)
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