Following is a schedule of Commission meetings, which will be conducted under provisions of the Government in the Sunshine Act. Meetings will be scheduled according to the requirements of agenda items under consideration.
Open meetings will be held in the Auditorium, Room L-002 at the Commission's headquarters building, 100 F Street, N.E., Washington, D.C. Visitors are welcome at all open meetings, insofar as space is available. Persons wishing to photograph or videotape Commission meetings must obtain permission in advance from the Secretary of the Commission. Persons wishing to tape record a Commission meeting should notify the Secretary's office 48 hours in advance of the meeting.
Any member of the public who requires auxiliary aids such as a sign language interpreter or material on tape to attend a public meeting should contact SECInterpreter@SEC.gov at least three business days in advance. For any other reasonable accommodation related disability contact DisabilityProgramOfficer or call 202-551-4158.
Open Meeting - Friday, November 19, 2010 - 10:00 a.m.
The subject matter of the Open Meeting will be:
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.
SEC and UK FSA Hold Meeting of SEC-FSA Strategic Dialogue
Securities and Exchange Commission Chairman Mary L. Schapiro today met separately in London with Chairman Adair Turner of the UK Financial Services Authority (FSA) and the Chief Executive of the UK Financial Reporting Council (FRC) Stephen Haddrill to discuss a number of issues of common concern.
During the SEC-FSA meeting, the agencies shared views regarding the oversight of over-the-counter derivatives trading, high-frequency trading, and the May 6 "flash crash" as well as recent regulatory initiatives regarding credit rating agencies and cross-border enforcement information-sharing between the FSA and SEC.
Chairman Schapiro and Lord Turner also restated their agencies' commitment to working together to improve regulation and oversight of their securities markets, particularly with regard to globally active regulated firms with a presence in both countries.
Chairman Schapiro said, "Both the SEC and FSA are in the process of drafting vital new rules for our own markets. Meetings like this with our UK counterparts at the highest levels give the Commission a better understanding of how similar market concerns are viewed in London. Given the international nature of the recent financial crisis, this exchange of views can only improve the regulatory solutions we develop to these challenging problems."
Lord Turner said, "As regulators, we all now face issues that cross borders and require international coordination. It is important that we are able to find common ground in approaching these issues and this continuing dialogue with the SEC forms a key part of this process."
The SEC and FSA have long had a close relationship, with the SEC and the FSA's predecessor agency first signing enforcement information-sharing arrangements in 1986.
More recently, the SEC and FSA concluded a supervisory information-sharing memorandum of understanding in 2006, in which the two regulators laid out how they would share information relating to the financial health and regulatory compliance of regulated entities operating in both countries.
During their meeting, Chairman Schapiro and FRC Chief Executive Haddrill discussed a variety of matters relating to regulatory reform efforts in the United States and Europe. They also covered topics of joint interest such as the oversight of audit firms providing services across borders into the UK and U.S., reform of rules governing issuer disclosure, and investor access to corporate proxies. (Press Rel. 2010-221)
Commission Sustains Disciplinary Action Against John B. Busacca, III
The Commission sustained FINRA disciplinary action against John B. Busacca, III, former president of North American Clearing, Inc., formerly a FINRA member firm. The Commission also sustained the six month suspension FINRA imposed against Busacca and $30,000 fine.
The Commission found that Busacca violated FINRA conduct rules by failing, as North American's president, to exercise reasonable supervision over the firm's back office operations in 2004 and 2005. During this period, North American, a clearing firm, experienced widespread operational breakdowns, following its conversion to a new, but faulty back office software system, that resulted in an influx of customer complaints and non compliance with regulatory requirements. According to the Commission's decision, "[d]espite the presence of numerous red flags," Busacca failed as president "to direct his prompt and full attention to remedying the Firm's operational breakdowns . . . and to preventing the occurrence of future problems." In upholding FINRA's sanctions, the Commission noted that "assuring proper supervision is a critical component of broker dealer operations" and that Busacca's failure to promptly address known problems revealed "a fundamental misunderstanding of his supervisory duties." The Commission additionally found that Busacca violated FINRA registration requirement by permitting North American to employ an unregistered chief compliance officer, noting that such misconduct undermined "an important safeguard in protecting public investors." (Rel. 34-63312; File No. 3 13750)
In the Matter of Algird M. Norkus
On Nov. 15, 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 Algird M. Norkus (Norkus). The Order finds that on Oct. 19, 2010, a Partial Final Judgment and Order of Permanent Injunction, Asset Freeze and Other Relief was entered by consent against Norkus in SEC v. Algird M. Norkus et al. (Case No. 1:10-cv-06582 (N.D. Ill.)) permanently enjoining him from future violations of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.
The Order further finds that the Commission's complaint in SEC v. Algird M. Norkus et al. alleged that Norkus, acting as President of Financial Update, Inc. (Financial Update), raised at least $6.4 million from at least 17 investors through the offer and sale of promissory notes issued by Financial Update. The complaint further alleged that Norkus told the investors that their money would be used to fund Financial Update's business activities and that he enticed investors by promising interest rates between 11% and 24% per year. The complaint alleged that in reality, Norkus used investor money to pay for personal expenses such as his mortgage and a car and that he also used the money provided by newer investors to make interest and principal payments to earlier investors. The complaint also alleged that Norkus never disclosed to investors that he was using their money in this fashion.
Based on the above, the Order bars Norkus from association with any broker, dealer or investment adviser. Norkus consented to the issuance of the Order without admitting or denying any of the findings except as to the entry of the Partial Final Judgment and Order of Permanent Injunction, Asset Freeze and Other Relief. (Rel. 34-63315; File No. 3-14123).
In the Matter of The Colonial BancGroup, Inc.
On Nov. 15, 2010, an Administrative Law Judge issued an Initial Decision in The Colonial BancGroup, Inc., Admin. Proc. 3-13967. The Colonial BancGroup, Inc. (Colonial) is a bank holding company headquartered in Montgomery, Alabama, with securities registered with the Securities and Exchange Commission that had a subsidiary, Colonial Bank. The State of Alabama Banking Department closed Colonial Bank on Aug. 14, 2009, and the Federal Deposit Insurance Corporation seized Colonial's assets. Colonial filed a petition under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Middle District of Alabama on Aug. 25, 2009.
Colonial admitted that it had not filed annual and quarterly reports with the Commission as alleged in the Order Instituting Proceedings and that it wanted access to the investigative file for purposes of the bankruptcy proceeding. The Administrative Law Judge found that the Division of Enforcement's (Division) condition that Colonial sign a confidentiality agreement before reviewing the investigative file, parts of which had been obtained from other government agencies, was reasonable. The Initial Decision granted the Division's Motion for Summary Disposition and revoked the registration of each class of Colonial's registered securities, pursuant to Section 12(j) of the Securities Exchange Act of 1934. (Initial Decision No. 406; File No. 3-13967)
Court Enters Final Judgment Against Investment Adviser and Its Principal Accused of Misappropriating Client Funds
The Securities and Exchange Commission announced today that the Massachusetts federal district court entered a Final Judgment by consent on Nov. 10, 2010 against defendants Amit Mathur and Entrust Capital Management, Inc. and relief defendant AMR Realty LLC, in connection with a civil injunctive action previously filed by the Commission. The Final Judgment enjoined Entrust and Mathur, its principal, from engaging in future violations of the antifraud provisions of the federal securities laws and held all three defendants jointly and severally liable for $12,572,237.28 in disgorgement.
The Commission filed its action against Mathur and Entrust, an investment advisory firm based in Worcester, Massachusetts, on April 12, 2005 and filed an Amended Complaint adding Raheev Johar, Mathur's partner at Entrust, as a defendant on Sept. 14, 2005. The Commission's Amended Complaint alleged that, from 2000 through 2005, the defendants engaged in a scheme to defraud investors in a purported hedge fund run by Mathur and Johar at Entrust. The Amended Complaint alleged that approximately twenty clients invested over $16 million with Entrust. The Commission alleged that the defendants made material misrepresentations to investors about, among other things, their assets under management and returns that the fund generated. According to the Amended Complaint, the defendants dissipated most of the $16 million invested through undisclosed trading losses and misappropriation of investor funds for the defendants' personal use. The Commission's Amended Complaint further alleged that Mathur, Johar, and Entrust transferred at least $1 million in investor funds to AMR Realty, a real estate investment company controlled by Mathur, which the Commission alleged had no legitimate interest in the funds. The Court, on April 12, 2005, entered a temporary restraining order and asset freeze against Mathur and Entrust and an asset freeze against AMR Realty and on Sept. 21, 2005, entered a preliminary injunction and asset freeze against Johar. A Final Judgment by consent was entered against Johar in the Commission action on June 4, 2007, which, among other things, ordered him to pay over $600,000 in disgorgement of ill-gotten gains, prejudgment interest, and penalties. In separate administrative proceedings, the Commission issued an Order by consent on June 26, 2007, barring Johar from association with any investment adviser.
In a parallel criminal case against Mathur prosecuted by the United States Attorney for the District of Massachusetts, Mathur was found guilty by a jury in May 2008 on federal mail and wire fraud charges for defrauding his investment advisory clients. A federal judge sentenced Mathur in May 2009 to ten years in federal prison. Upon release from imprisonment, Mathur will be placed on supervised release for three years. The Court also ordered Mathur to pay restitution in the amount of $12,572,237.28 and a special assessment of $2,000.00. In separate administrative proceedings following Mathur's criminal conviction, the Commission issued an Order by consent on July 14, 2008, barring Mathur from association with any investment adviser.
The Final Judgment against Mathur, Entrust, and AMR Realty enjoined Mathur and Entrust from violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, Section 17(a) of the Securities Act of 1933, and Sections 206(1) and 206(2) of the Investment Advisers Act. The Judgment further held Mathur, Entrust and AMR Realty jointly and severally liable for $12,572,237.28 in disgorgement, to be satisfied in part by the transfer of assets currently subject to the Court's preliminary injunction and asset freeze to the registry of the court in the criminal action. Upon completion of that transfer, the remainder of the disgorgement obligation in the Commission action is deemed satisfied by entry of the criminal restitution order.
For more information, see Litigation Release Nos. 19181 (April 13, 2005), 19195 (April 20, 2005), 19396 (Sept. 27, 2005), 20143 (June 5, 2007), 20590 (May 20, 2008), and 21037 (May 13, 2009). See also Advisers Act Release Nos. 2611 (June 26, 2007) and 2754 (July 14, 2008). [SEC v. Amit Mathur, Entrust Capital Management, Inc., and Raheev Johar, No. 05-CV-10729-MLW (District of Massachusetts)] (LR-21739)
SEC Charges Hedge Fund Manager with Insider Trading in an Action Related to the Galleon Investigation
On Friday, Nov. 12, 2010, the Securities and Exchange Commission filed a civil injunctive action in the United States District Court for the Southern District of New York charging Thomas C. Hardin, a former managing director at a New York-based hedge fund investment adviser, Lanexa Management LLC, for insider trading in connection with two corporate takeovers and a quarterly earnings announcement. The illicit profits at Lanexa resulting from Hardin's conduct alleged in this filing exceed $950,000. The complaint filed last Friday relates to an ongoing enforcement action, SEC v. Galleon Management, LP, et al., 09-CV-8811 (S.D.N.Y.) (JSR).
In SEC v. Galleon, the SEC has, as of today, charged twenty-two defendants and alleged widespread and repeated insider trading at numerous hedge funds, including Galleon, a multi-billion dollar New York hedge fund complex founded and controlled by defendant Raj Rajaratnam, and by other professional traders in the securities of fourteen issuers generating illicit profits totaling approximately $53 million.
The SEC's most recent complaint related to this action, filed last Friday in federal court in Manhattan, charges Hardin with trading in the securities of Hilton, Google and Kronos based on material nonpublic information that Hardin allegedly received from Roomy Khan, an individual investor who had, herself, received such information from various sources.
The SEC's complaint alleges that Khan tipped Hardin to inside information she received from a Moody's rating agency analyst, about an impending takeover of Hilton by The Blackstone Group. According to the allegations, Hardin traded on the information on behalf of Lanexa and also passed the information to others, who similarly traded on the information. Khan also shared with Hardin inside information she received from an employee at Market Street Partners, an investor relations consulting firm that did work for Google, about Google's Q2 2007 earnings. Hardin traded on the information on behalf of Lanexa and also tipped others. Finally, Khan tipped Hardin to inside information she received about the impending acquisition of Kronos by Hellman & Friedman. Hardin traded on the information on behalf of Lanexa and also tipped others, who traded on the information.
The SEC's complaint charges Hardin with violations of the antifraud provisions of the federal securities laws, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Section 17(a) of the Securities Act of 1933. The complaint seeks a final judgment permanently enjoining Hardin from future violations of the antifraud provisions, ordering him to disgorge ill-gotten gains plus prejudgment interest, and ordering him to pay financial penalties.
In addition, since the case was filed the SEC has:
For further information, see Litigation Release Nos. 21255 (Oct. 16, 2009), 21284 (Nov. 5, 2009), 21397 (Jan. 9, 2010), 21493 (April 20, 2010), 21526 (May 17, 2010), and 21732 (Nov. 8, 2010). [SEC v. Thomas C. Hardin, Civil Action No. 10-CV- 8600 (SDNY)] (LR-21740; Press Rel. 2010-220)
SEC Charges Hedge Fund Adviser and Two Wall Street Professionals With Insider Trading
The Securities and Exchange Commission announced insider trading charges against Lanexa Management LLC, a hedge fund investment adviser, and a former managing director, Thomas Hardin, for trading ahead of the Sept. 28, 2007 announced acquisition of 3Com Corp. In a separate complaint, the SEC also charged Franz Tudor, a former proprietary trader at the broker-dealer Schottenfeld Group LLC, for insider trading in connection with the Nov. 29, 2007 announced acquisition of Axcan Pharma Inc.
According to the SEC's complaints, which were filed in federal court in Manhattan on Nov. 12, 2010, Arthur Cutillo and Brien Santarlas, two former attorneys with the international law firm of Ropes & Gray LLP, misappropriated from their law firm material, nonpublic information concerning the acquisitions of 3Com and Axcan. The SEC alleges that they tipped this inside information, through another attorney, to Zvi Goffer, a former proprietary trader at Schottenfeld, in exchange for kickbacks.
The SEC's complaint against Lanexa Management and Hardin alleges that Goffer tipped inside information concerning the 3Com acquisition to Gautham Shankar, a fellow proprietary trader at Schottenfeld, who then tipped Hardin this inside information. According to the complaint, Hardin then traded in the securities of 3Com on behalf of a Lanexa Management hedge fund, resulting in approximately $640,000 in illicit profits.
In a separate complaint, the SEC alleges that Goffer also tipped material, nonpublic information concerning the proposed acquisition of Axcan to Tudor, another fellow proprietary trader at Schottenfeld. The SEC alleges that, based on this inside information, Tudor purchased shares of Axcan in two separate personal trading accounts as well as in a proprietary account at Schottenfeld. The SEC alleges that Tudor made approximately $75,000 in illicit profits.
The SEC's complaints charge Lanexa Management, Hardin, and Tudor with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaints seek permanent injunctive relief, disgorgement of illicit profits with prejudgment interest, and civil monetary penalties.
The SEC previously filed related charges against Cutillo, Goffer, Goldfarb, Shankar and five other defendants on Nov. 5, 2009, and Santarlas on Dec.10, 2009. See Lit. Rel. Nos. 21283 and 21332.
The SEC's investigation is continuing. [SEC v. Lanexa Management LLC and Thomas C. Hardin, Civil Action No. 10-CV-8599 (S.D.N.Y.); SEC v. Franz N. Tudor, Civil Action No. 10-CV-8598 (S.D.N.Y.)] (LR-21741; Press Rel. 2010-220)
SEC Settles Offering Fraud Charges Against Chicago Promoter
The Securities and Exchange Commission today announced that on Oct. 29, 2010, the U.S. District Court for the Northern District of Ohio entered a settled Final Judgment as to Defendant Walter W. Knitter, in the previously filed Commission fraudulent unregistered offering action, Securities and Exchange Commission v. Integrity Financial AZ, LLC, Civil Action No. 10-CV-782 (SO) (N.D. Ohio, filed April 15, 2010). The Commission's complaint alleged that Knitter, who is based in Chicago and who was working for Integrity Financial AZ, LLC, promoted an unregistered offering of securities in the form of promissory notes purportedly secured by real estate in Arizona. The complaint further alleged that Knitter and the other defendants made multiple fraudulent misrepresentations regarding the safety of the investment, including telling prospective investors that 100% of investor funds would be used to build houses in Tonopah, Arizona and that the investment was "FDIC insured."
Knitter consented to the entry of the Final Judgment against him, without admitting or denying the allegations in the Commission's complaint, except as to jurisdiction. The Final Judgment against Knitter permanently enjoins him from further violations of registration and antifraud provisions of the federal securities laws. The Final Judgment further finds Knitter liable for disgorgement in the amount of $105,595, plus prejudgment interest in the amount of $5,481, but waives payment of all but $24,400 of the disgorgement and prejudgment interest, based on Knitter's sworn representations in his Statement of Financial Condition and other documents and information submitted to the Commission. [SEC v. Integrity Financial AZ, LLC, Steven R. Long, Stanley M. Paulic, Walter W. Knitter, and Robert C. Koeller, Civil Action No. 10-CV-782 (SO) (N.D. Ohio)] (LR-21742)
Disgorgement and Civil Penalties Ordered Against Defendants Winning Kids, Inc. and Christian Hainsworth
The Commission announced that on Nov. 5, 2010, the Honorable Kenneth A. Marra, United States District Court Judge for the Southern District of Florida, ordered disgorgement and civil penalties against Defendants Winning Kids, Inc. and its founder and CEO, Christian Hainsworth for their alleged offering scheme in violation of the federal securities laws. Winning Kids is ordered to pay disgorgement of $1,044,504.66, prejudgment interest of $94,956.95 and a civil penalty of $1,044,504.66. Hainsworth is ordered to pay disgorgement of $541,356.70, prejudgment interest of $49,215.21 and a civil penalty of $541,356.70.
Previously, on Feb. 1, 2010, the Court entered judgments of permanent injunction against Winning Kids and Hainsworth enjoining them from further violations of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934 (Exchange Act) and enjoining Hainsworth from aiding and abetting violations of Section 15(a) of the Exchange Act. Winning Kids and Hainsworth consented to the entry of the judgments without admitting or denying the allegations in the complaint. [SEC v. Winning Kids, Inc., et al., Civil Action No. 10-CV-80186-Marra (S.D. Fla.)] (LR-21743)
Proposed Rule Change
The Commission issued a notice of filing of a proposed rule change by the Municipal Securities Rulemaking Board pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934, consisting of amendments to Rule G-5, on disciplinary actions by appropriate regulatory agencies, remedial notices by registered securities associations; and Rule G-17, on conduct of municipal securities activities (SR-MSRB-2010-16). Publication is expected in the Federal Register during the week of November 15. (Rel. 34-63309)
Immediate Effectiveness of Proposed Rule Changes
A proposed rule change filed by the Municipal Securities Rulemaking Board relating to revisions to the study outline and selection specifications for the municipal securities representative qualification examination (Series 52) program (SR-MSRB-2010-12) 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 November 15. (Rel. 34-63310)
A proposed rule change filed by the Municipal Securities Rulemaking Board relating to amendments to Rule A-12, on Initial Fee, and Rule A-14, on Annual Fee (SR-MSRB-2010-14) 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 November 15. (Rel. 34-63313)
Approval of Proposed Rule Change
The Commission approved a proposed rule change (SR-FINRA-2010-044) submitted by the Financial Industry Regulatory Authority pursuant to Rule 19b-4 under the Securities Exchange Act of 1934 relating to the expansion of the Order Audit Trail System to all NMS stocks. Publication is expected in the Federal Register during the week of November 15. (Rel. 34-63311)
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