Securities and Exchange Commission Suspends Trading in the Securities of Nine Issuers for Failure to Make Required Periodic Filings
The U.S. Securities and Exchange Commission announced the temporary suspension of trading in the securities of the following issuers, commencing at 9:30 a.m. EDT on October 19, 2010 and terminating at 11:59 p.m. EDT on November 1, 2010.
The Commission temporarily suspended trading in the securities of these nine issuers due to a lack of current and accurate information about the companies because they have not filed periodic reports with the Commission in over two years. This order was entered pursuant to Section 12(k) of the Securities Exchange Act of 1934 (Exchange Act).
The Commission cautions brokers, dealers, shareholders and prospective purchasers that they should carefully consider the foregoing information along with all other currently available information and any information subsequently issued by these companies.
Brokers and dealers should be alert to the fact that, pursuant to Exchange Act Rule 15c2-11, at the termination of the trading suspensions, no quotation may be entered relating to the securities of the subject companies unless and until the broker or dealer has strictly complied with all of the provisions of the rule. If any broker or dealer is uncertain as to what is required by the rule, it should refrain from entering quotations relating to the securities of these companies that have been subject to a trading suspension until such time as it has familiarized itself with the rule and is certain that all of its provisions have been met. Any broker or dealer with questions regarding the rule should contact the staff of the Securities and Exchange Commission in Washington, DC at (202) 551-5720. If any broker or dealer enters any quotation which is in violation of the rule, the Commission will consider the need for prompt enforcement action.
If any broker, dealer or other person has any information which may relate to this matter, they should immediately communicate it to the Delinquent Filings Branch of the Division of Enforcement at (202) 551-5466, or by e-mail at DelinquentFilings@sec.gov. (Rel. 34-63127A)
SEC Charges Georgia-Based Hedge Fund Managers With Fraud in Valuing a "Side Pocket" and Theft of Investor Assets
The Securities and Exchange Commission today charged two hedge fund portfolio managers and their investment advisory businesses with defrauding investors in the Palisades Master Fund, L.P. by overvaluing illiquid fund assets they placed in a "side pocket." The SEC alleges that the hedge fund managers also stole investor money to pay for their own personal investments and made material misrepresentations in connection with a private securities transaction.
The SEC alleges that Paul T. Mannion, Jr., of Norcross, Ga., and Andrews S. Reckles of Milton, Ga., placed the Palisades hedge fund's investments in World Health Alternatives Inc. in a side pocket and valued those investments in a manner that was inconsistent with fund policy and contrary to an undisclosed internal assessment. A side pocket is a type of account that hedge funds use to separate particular investments that are typically illiquid from the remainder of the investments in the fund. The SEC's Asset Management Unit has been probing whether funds have overvalued assets in side pockets while charging investors higher fees based on those inflated values.
The SEC further alleges that Mannion and Reckles stole more than approximately $1.6 million worth of warrants belonging to the fund. They also improperly used investors' cash on at least two occasions to make personal investments, and they deceived a securities issuer by making false representations about their trading positions in order to participate in a private offering by the issuer.
"Mannion and Reckles put their own selfish interests ahead of Palisades' investors, treating the fund like their own personal bank account by stealing and improperly borrowing millions of dollars in fund assets," said Scott W. Friestad, Associate Director of the SEC's Division of Enforcement.
Robert B. Kaplan, Co-Chief of the SEC's Asset Management Unit, added, "Side pockets are not supposed to be a dumping ground for hedge fund managers to conceal overvalued assets. Mannion and Reckles deceived investors about the fund's performance and extracted excessive management fees based on the inflated asset values in a side pocket."
According to the SEC's complaint filed in the U.S. District Court for the Northern District of Georgia, Mannion and Reckles defrauded investors for at least a three-month period in 2005 through PEF Advisors LLC and PEF Advisors Ltd., two investment adviser entities they controlled. The fraudulent valuations of a convertible debenture, restricted stock, and bridge loans enabled Mannion and Reckles to report to investors misleadingly inflated net asset values, allowing them to take excessive management fees from the fund.
The SEC's complaint alleges that Mannion and Reckles stole more than one million warrants in World Health that belonged to the fund. At the time Mannion and Reckles exercised those warrants, they were worth $1.6 million. In July 2005, Mannion and Reckles took an undisclosed $2 million from the fund as an apparent short-term loan to finance their personal investments. They separately used approximately $13,000 from the fund to pay for services not rendered to the fund.
According to the SEC's complaint, Mannion and Reckles also made material misrepresentations in connection with a PIPE (private investment in public equity) offering conducted by Radyne ComStream Inc. in February 2004.
The SEC complaint charges defendants with violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. The Commission seeks injunctive relief, disgorgement of profits, prejudgment interest, and financial penalties.
The SEC's investigation was conducted by Adam S. Aderton and Julie M. Riewe of the Enforcement Division's Asset Management Unit under the leadership of co-chiefs Robert B. Kaplan and Bruce Karpati. The SEC's litigation effort will be led by David Williams.
For more information about this enforcement action, contact:
Scott W. Friestad, Associate Director, Division of Enforcement, 202-551-4962
Robert B. Kaplan (202-551-4969) and Bruce Karpati (212-336-0104) Co-Chiefs of the SEC Asset Management Unit
Julie M. Riewe, Assistant Director, Asset Management Unit, 202-551-4546
(Press Rel. 2010-199)
RULES AND RELATED MATTERS
Technical Amendments to Forms N-CSR and N-SAR in Connection with the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010
On October 13, the Commission adopted technical amendments to its forms in connection with amendments to Section 13(c) of the Investment Company Act that were included in the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010. The Commission has determined that no substantive revisions to our forms requiring Section 13(c) divestment disclosure are necessary and that only technical revisions to our forms are appropriate to make the existing forms consistent with the Act. The technical amendments will be effective on the date of publication in the Federal Register. (Rel. 34-63087; IC-29461)
SEC Requests Comment on Study Required by Section 989G(b) of the Dodd-Frank Act Regarding Compliance with Section 404(b) of the Sarbanes-Oxley Act
On October 14, the Securities and Exchange Commission issued a release requesting public comment related to a study of how the Commission could reduce the burden of complying with Section 404(b) of the Sarbanes-Oxley Act of 2002 for companies whose public float is between $75 million and $250 million, while maintaining investor protections for such companies, and whether any methods of reducing the compliance burden or a complete exemption for such companies from the auditor attestation requirement in Section 404(b) would encourage companies to list on exchanges in the United States in their initial public offerings. This study is required by the Dodd-Frank Wall Street Reform and Consumer Protection Act.
The full text of the release is posted on the SEC's website and will be published in the Federal Register. (Rel. 34-63108)
Commission Orders Hearings on Registration Suspension or Revocation Against Nine Companies for Failure to Make Required Periodic Filings
In conjunction with today's trading suspension, the Commission also instituted separate public administrative proceedings to determine whether to revoke or suspend for a period not exceeding twelve months the registration of each class of the securities of nine companies for failure to make required periodic filings with the Commission:
In the Order, the Division of Enforcement (Division) alleges that the respective Respondents are delinquent in their required periodic filings with the Commission.
In these proceedings, instituted pursuant to Exchange Act Section 12(j), a hearing will be scheduled before an Administrative Law Judge. At the hearing, the judge will hear evidence from the Division and the Respondents to determine whether the allegations of the Division contained in the Order, which the Division alleges constitute failures to comply with Exchange Act Section 13(a) and Rules 13a-1 and 13a-13 thereunder, are true. The judge in the proceedings will then determine whether the registrations pursuant to Exchange Act Section 12 of each class of the securities of these Respondents should be revoked or suspended for a period not exceeding twelve months. The Commission ordered that the Administrative Law Judge in the proceedings issue an initial decision not later than 120 days from the date of service of the order instituting proceedings. (Rel. 34-63128A; File No. 3-14091)
Securities and Exchange Commission Orders Hearing on Registration Revocation Against Six Public Companies for Failure to Make Required Periodic Filings
Today the Commission instituted public administrative proceedings to determine whether to revoke or suspend for a period not exceeding twelve months the registrations of each class of the securities of six companies for failure to make required periodic filings with the Commission:
In this Order, the Division of Enforcement (Division) alleges that the six issuers are delinquent in their required periodic filings with the Commission.
In this proceeding, instituted pursuant to Exchange Act Section 12(j), a hearing will be scheduled before an Administrative Law Judge. At the hearing, the Administrative Law Judge will hear evidence from the Division and the Respondents to determine whether the allegations of the Division contained in the Order, which the Division alleges constitute failures to comply with Exchange Act Section 13(a) and Rules 13a-1 and 13a-13 thereunder, are true. The Administrative Law Judge in the proceeding will then determine whether the registrations pursuant to Exchange Act Section 12 of each class of the securities of these Respondents should be revoked or suspended for a period not exceeding twelve months. The Commission ordered that the Administrative Law Judge in this proceeding issue an initial decision not later than 120 days from the date of service of the order instituting proceedings. (Rel. 34-63131; File No. 3-14092)
Approval of Proposed Rule Change
The Commission approved a proposed rule change (SR-Phlx-2010-119) submitted under Rule 19b-4 by NASDAQ OMX PHLX to amend Exchange Rule 652 (Limitation of Exchange Liability and Reimbursement of Certain Expenses) to require member organizations on the Exchange's trading floor to procure and maintain liability insurance. Publication is expected in the Federal Register during the week of October 18. (Rel. 34-63121)
Immediate Effectiveness of Proposed Rule Change
A proposed rule change filed by BATS Exchange to make clean up changes by amending certain rules (SR-BATS-2010-028) 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 18. (Rel. 34-63122)
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