Statement by SEC Chairman Schapiro and CFTC Chairman Gensler on the Joint Report Regarding the Market Events of May 6th
The staffs of the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) today released a joint report presenting their findings regarding the market events of May 6, 2010. The report will be presented to the Joint CFTC-SEC Advisory Committee on Emerging Regulatory Issues. Twelve days after May 6th, the staffs of the Commissions released a preliminary report on the events of that day.
SEC Chairman Mary L. Schapiro and CFTC Chairman Gary Gensler issued the following statement in connection with the report:
"We appreciate the incredible effort of all the professionals at both agencies who have worked tirelessly, scouring the data, interviewing market participants and reconstructing the events of May 6th. This report identifies what happened and reaffirms the importance of a number of the actions we have taken since that day. We now must consider what other investor-focused measures are needed to ensure that our markets are fair, efficient and resilient, now and for years to come."
(Press Rel. 2010-179)
SEC Wins Fraud Trial Against Miami-Based Investment Companies and Their Owners
The Securities and Exchange Commission announced today that a federal judge has ruled in the SEC's favor in a trial against two Miami-based companies and three owners charged with fraudulently siphoning investor money through exorbitant, undisclosed commissions and fees in the sale of mutual funds.
U.S. Pension Trust Corp. and U.S. College Trust Corp. have been ordered by the Honorable Jose Martinez of the Southern District of Florida to pay more than $112 million. The three individuals running the companies - Iliana Maceiras, Leonardo Maceiras Jr., and Nildo Verdeja - have been ordered to pay more than $3.36 million combined. The SEC charged the entities and individuals in September 2007 for defrauding approximately 14,000 investors in a 13-year scheme.
"Under the federal securities laws, investors are entitled to full disclosure so they know how much of their investment is going toward commissions and fees. The outcome of this case makes that point loud and clear," said Eric I. Bustillo, Director of the SEC's Miami Regional Office. "We will continue to aggressively pursue those who take investors' money and fail to give a full picture of how they are using those funds."
According to the court's findings, U.S. Pension Trust and U.S. College Trust solicited investments from mostly foreign investors in various multi-year investment plans starting in 1995. The plans put funds into a combination of U.S. mutual funds and insurance products. The court found that both in written materials provided to investors and in conversations that sales agents had with investors, the companies intentionally omitted disclosing numerous commissions and fees, including up to 85 percent of first-year contributions in some plans. The court found that the companies and the individuals misrepresented to investors that their products were registered and regulated by the SEC, the Federal Reserve Bank, and the Office of the Comptroller of the Currency. The court also found that the defendants acted as broker-dealers in selling their products, without registering with the SEC.
The two companies were ordered to disgorge $62.6 million and pay a $50 million penalty. Each individual has been ordered to pay a $200,000 penalty in addition to disgorgement of their salaries during that time. Iliana Maceiras must disgorge $1,093,364. Leonardo Maceiras, Jr. must disgorge $674,567. Nildo Verdeja must disgorge $993,515.
In addition to the disgorgement and penalties, the court entered permanent injunctions against both companies and all three individuals against future violations of the securities laws.
In a related case, the same court entered a final judgment on Sept. 21, 2010 against Regions Bank - which served as trustee of U.S. Pension Trust and U.S. College Trust's plans from 2001 until 2009 - for its role in the offering fraud. The final judgment enjoined Regions Bank from violating the anti-fraud provisions of the federal securities laws and aiding and abetting violations of the broker-dealer registration provisions of the securities laws. Regions agreed to settle the charges without admitting or denying the allegations by consenting to the entry of the final judgment requiring payment of a $1 million penalty into a Fair Fund for the benefit of investors injured in U.S. Pension Trust and U.S. College Trust's offering fraud.
The SEC's case was litigated by senior trial counsels Amie Riggle Berlin and Scott Masel with the support of paralegal Patricia Soto and senior regional accountant Fernando Torres, who all work in the agency's Miami Regional Office.
For more information concerning this enforcement action, contact:
Eric I. Bustillo
(Press Rel. 2010-180)
Court Enters Final Judgment Against Former Controller of Massachusetts Technology Company
The Commission announced that on September 30, 2010, a Massachusetts federal court entered a final judgment by consent against Steven Forman of Chelmsford, Massachusetts, a defendant in an action filed by the Commission in June 2007. In its complaint, the Commission had alleged that Forman, the former controller of Speechworks International, Inc., then a public company based in Boston, Massachusetts, and others improperly inflated Speechworks' revenues and misstated other important financial metrics that misled investors as to the company's true financial condition. Among other things, the complaint had alleged that Forman had participated in Speechworks improper recognition of $2 million in royalty prepayments as revenue, even though the revenue did not qualify for revenue recognition under Speechworks' policies and generally accepted accounting principles. Without admitting or denying the allegations in the complaint, Forman consented to the final judgment that was entered by the court. The court enjoined Forman from aiding and abetting violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934 and Rules 12b-20, 13a-1, and13a-13 thereunder, and imposed a $20,000 penalty. [SEC v. Forman, et al., Civil Action No. 07-11151-RWZ (D. Mass.)] (LR-21677; AAE Rel. 3192)
SEC v. Rex C. Steffes, Cliff M. Steffes, Rex R. Steffes, Bret W. Steffes, Robert J. Steffes and W. Gary Griffiths
The Securities and Exchange Commission today announced that it has filed a complaint in the United States District Court for the Northern District of Illinois against Rex C. Steffes, Cliff M. Steffes, Rex R. Steffes, Bret W. Steffes, Robert J. Steffes and W. Gary Griffiths for engaging in unlawful insider trading in the securities of Florida East Coast Industries, Inc. in advance of the May 2007 public announcement that the company would be acquired by an affiliate of the Fortress Investment Group, LLC.
The Commission's complaint alleges that Gary Griffiths and Cliff Steffes learned material, non-public information about Florida East Coast's acquisition through their employment at a freight railway that was a wholly-owned subsidiary of Florida East Coast. The complaint further alleges that Gary Griffiths and Cliff Steffes tipped Rex C. Steffes, who is Cliff's father and Gary Griffiths's brother-in-law, about the upcoming acquisition of Florida East Coast. Other family members tipped included Bret Steffes and Rex R. Steffes (sons of Rex C. Steffes and brothers of Cliff Steffes) and Robert J. Steffes (brother of Rex C. Steffes). The complaint alleges that several other individuals were tipped as well. Following the tips, the traders purchased $1.6 million in Florida East Coast stocks and options, which generated more than $1 million in illicit profits after the acquisition of the company.
The Commission charges the defendants with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and seeks permanent injunctions, disgorgement plus prejudgment interest and civil penalties. Without admitting or denying the SEC's allegations, Robert J. Steffes has consented to a court order that would permanently enjoin him from violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and require him to pay disgorgement of $104, 981, prejudgment interest of $15,951 and a civil penalty of $104,981. [SEC v. Rex C. Steffes, Cliff M. Steffes, Rex R. Steffes, Bret W. Steffes, Robert J. Steffes and W. Gary Griffiths, Case No. 1:10-cv-06266 (N.D. Ill.)] (LR-21678)
SEC Prevails in Trial Against W. Anthony Huff and Others in a Multi-Million Financial Fraud involving a Fort Lauderdale, Florida Company
The Securities and Exchange Commission announced today that W. Anthony Huff was found liable for violations of the anti-fraud provisions of the federal securities laws stemming from a fraudulent scheme to hide his control over and subsequently loot a Fort Lauderdale professional employment company of millions of dollars.
A 122-page order from the Honorable Robin S. Rosenbaum, United States Magistrate Judge for the Southern District of Florida, found Huff liable for violating Sections 10(b) and 20(a) and Rule 10b-5 of the Securities Exchange Act of 1934 and Section 17(a) of the Securities Act of 1933, and aiding and abetting other violations of the federal securities laws in connection with his involvement with Certified Services, Inc., formerly located in Fort Lauderdale. The Magistrate ordered Huff to pay disgorgement of more than $10 million, representing illegally obtained monies, prejudgment interest of approximately $3 million, and a civil penalty of $600,000. The opinion followed a seven-day bench trial in February.
According to the Court's findings, Huff engaged in a scheme to overstate Certified's financial condition in public filings with the SEC from the third-quarter of 2002 through the third-quarter of 2004. The opinion found Huff and others accomplished this scheme by, among other things, recording $47 million in bogus letters of credits on Certified's books and records. The Court further found Certified's public filings were materially false and misleading because they omitted Huff's criminal background and undisclosed control over Certified.
The Court found that at the same time Huff was misstating Certified's financial condition, he and associates engaged in a series of transactions so "Huff and his friends could enjoy the high life." Huff acted egregiously to "avoid disclosing his negative history and to obscure his involvement with" Certified to loot the company, the opinion stated. "The scheme went on for more than two years, and he was able to obtain more than $10 million for himself and his family through his wrongdoing."
"We are very happy with the result and we will continue to aggressively investigate and prosecute all who violate the federal securities violations all the way to trial, if need be," Eric I. Bustillo, Director of the Commission's Miami Regional Office.
The Court enjoined Huff from further violating certain provisions of the federal securities laws and rules and barred him from serving as an officer or director of any publicly traded company. In addition to the disgorgement and penalty order against Huff, the Court ordered Relief Defendant Sheri Huff to disgorge $3.8 million and Relief Defendant Midwest Merger Management, LLC to disgorge more than $10 million, representing illegally obtained monies and held Huff jointly and severally liable with Sheri Huff and Midwest.
This case was litigated for the Commission by Christopher E. Martin, Senior Trial Counsel, and Trisha Sindler, Senior Counsel, with the support of Lilia Gonzalez, Paralegal, and Tim Galdencio, Accountant. [SEC v. W. Anthony Huff, et al., Civil Action No. 08-60315-CIV-ROSENBAUM (S.D. Fla.)] (LR-21679A; AAE Rel. 3193A)
INVESTMENT COMPANY ACT RELEASES
Tudor Employee Investment Fund LLC and Tudor Investment Corporation
An order has been issued on an application filed by Tudor Employee Investment Fund LLC and Tudor Investment Corporation to exempt certain limited liability companies and other investment vehicles formed for the benefit of eligible employees of Tudor Investment Corporation and its affiliates from certain provisions of the Investment Company Act. Each limited liability company or other investment vehicle will be an "employees' securities company" within the meaning of section 2(a)(13) of the Act. (Rel. IC-29449 - September 29)
Capital Southwest Corporation
A notice has been issued giving interested persons until October 25, 2010, to request a hearing on an application filed by Capital Southwest Corporation (Capital Southwest) 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 authorizing certain joint transactions otherwise prohibited by Section 57(a)(4) of the Act. The order would permit Capital Southwest to issue restricted shares of its common stock to its officers and employees under the terms of its equity incentive compensation plan. (Rel. IC-29450 - September 29)
Northern Lights Fund Trust, et al.
A notice has been issued giving interested persons until October 25, 2010 to request a hearing on an application filed by Northern Lights Fund Trust, et al., for an order under Section 6(c) of the Investment Company Act for an exemption from Rule 12d1-2(a) under the Act. The order would permit funds of funds relying on Rule 12d1-2 under the Act to invest in certain financial instruments. (Rel. IC-29452 - September 30)
Triangle Capital Corporation, et al.
A notice has been issued giving interested persons until October 21, 2010 to request a hearing on an application filed by Triangle Capital Corporation (Triangle), et al. for an order to amend a prior order that permits Triangle, which is a business development company (BDC), and its wholly-owned small business investment company (SBIC) subsidiary to engage in certain transactions that otherwise would be permitted if Triangle and such SBIC subsidiary were one company and to file certain reports on a consolidated basis, and permits Triangle to adhere to a modified asset coverage requirement (Prior Order). Applicants seek to amend the Prior Order in order to permit such SBIC subsidiary, which is also a BDC, and a newly formed SBIC subsidiary or any future SBIC subsidiary to engage in certain transactions that otherwise would be permitted if Triangle and the SBIC subsidiaries were one company and to permit Triangle to adhere to a modified asset coverage requirement. (Rel. IC-29453 - September 30)
Approval of Proposed Rule Change
The Commission approved a proposed rule change (SR-FINRA-2010-021) submitted by the Financial Industry Regulatory Authority to amend FINRA Rule 8210 to require information provided via portable media device be encrypted. Publication is expected in the Federal Register during the week of October 4. (34-63016)
Immediate Effectiveness of Proposed Rule Changes
A proposed rule change (SR-ISE-2010-95) filed by the International Securities Exchange amending Rule 717 has become effective under Section 19(b)(3)(A) under the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of October 4. (34-63017)
A proposed rule change filed by the NASDAQ Stock Market (SR-NASDAQ-2010-116) to modify Nasdaq's order routing rule 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 October 4. (34-63022)
A proposed rule change filed by NASDAQ OMX PHLX regarding clearly erroneous transactions (SR-PHLX-2010-125) 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 October 4. (34-63023)
A proposed rule change filed by NASDAQ OMX PHLX relating to disseminated quotations (SR-Phlx-2010-134) 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 October 4. (34-63024)
Accelerated Approval of Proposed Rule Change
The Municipal Securities Rulemaking Board filed Amendment No. 1 and the Commission approved on an accelerated basis, a proposed rule change, as modified by Amendment No. 1 (SR-MSRB-2010-08) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 to amend Rule A-3, on membership on the board, to comply with the Dodd-Frank Wall Street Reform and Consumer Protection Act. Publication is expected in the Federal Register during the week of October 4. (34-63025)
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