Closed Meeting - Thursday, December 9, 2010 - 2:00 p.m.
The subject matter of the Closed Meeting scheduled for Thursday, December 9, 2010 will be: institution and settlement of injunctive actions; institution and settlement of administrative proceedings; and other matters relating to enforcement proceedings.
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.
RULES AND RELATED MATTERS
Notice of Filing a Proposed Bylaw Change Relating to SIPC Fund Assessments on SIPC Members
The Securities Investor Protection Corporation has filed a proposed bylaw change (SIPC-2010-01) pursuant to Section 3(e)(1) of the Securities Investor Protection Act of 1970, to amend its Assessments bylaw. Publication is expected in the Federal Register during the week of November 29. (Rel. SIPA-169)
Commission Revokes Registration of Securities of Epic Financial Corp. for Failure to Make Required Periodic Filings
On December 1, the Commission revoked the registration of each class of registered securities of Epic Financial Corp. (Epic Financial) for failure to make required periodic filings with the Commission.
Without admitting or denying the findings in the Order, except as to jurisdiction, which it admitted, Epic Financial Corp. consented to the entry of an Order Making Findings and Revoking Registration of Securities Pursuant to Section 12(j) of the Securities Exchange Act of 1934 as to Epic Financial Corp. finding that it had failed to comply with Section 13(a) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 13a-1 and 13a-13 thereunder and revoking the registration of each class of Epic Financial's securities pursuant to Section 12(j) of the Exchange Act. This Order settled the proceedings brought against Epic Financial in In the Matter of Enclaves Group, Inc., et al., Administrative Proceeding File No. 3-14119.
Brokers and dealers should be alert to the fact that Exchange Act Section 12(j) provides, in pertinent part, as follows:
No member of a national securities exchange, broker, or dealer shall make use of the mails or any means or instrumentality of interstate commerce to effect any transaction in, or to induce the purchase or sale of, any security the registration of which has been and is suspended or revoked . . . .
For further information see Order Instituting Administrative Proceedings and Notice of Hearing Pursuant to Section 12(j) of the Securities Exchange Act of 1934, In the Matter of Enclaves Group, Inc., et al., Administrative Proceeding File No. 3-14119, Exchange Act Release No. 63297, November 10, 2010. (Rel. 34-63401; File No. 3-14119)
SEC Charges San Francisco Hedge Fund Manager With Hiding Multi-Million-Dollar Trading Losses From Investors
The Securities and Exchange Commission today charged a San Francisco-based hedge fund manager with fraud for failing to inform his investors of millions of dollars in trading losses.
According to the SEC, Neil Godbole managed a hedge fund called Opulent Lite and sent investors in the fund regular account statements representing that the fund was performing dramatically better than it actually was.
Godbole is settling the SEC's charges against him by agreeing to a cease-and-desist order, to pay a financial penalty, and to be barred from associating with an investment adviser with right to reapply after five years.
According to the SEC's order instituting proceedings against Godbole, the Opulent Lite fund had 70 investors and approximately $30 million in assets at the beginning of 2008. In the February 2008 trading period, the fund lost $8.3 million. The SEC found that Godbole sent investors account statements that failed to report these losses or other trading losses incurred throughout the year.
For example, the SEC's order finds that in September 2008, Godbole reported trading losses of $859,000. In reality, the fund had lost $4 million. At the same time, Godbole reported the fund's asset value as $29 million when it had actually fallen to $19 million. By the end of 2008, when the fund's value had fallen to below $14.4 million, Godbole reported a value of over $26 million.
According to the SEC's order, Godbole caused the fund to pay him a management fee throughout 2008 based on the fraudulently inflated value of the fund. In early 2009, Godbole finally disclosed the accurate results, reimbursed the fund for the overpayment of management fees, and liquidated the fund.
The SEC's order finds that Godbole misled investors in the Opulent Lite fund. Godbole agreed to settle the SEC's case without admitting or denying the findings. Godbole has agreed to cease and desist from violating the antifraud provisions of the Investment Advisers Act of 1940, pay a $40,000 penalty, and be barred from association with any investment adviser with the right to reapply for association in five years. (Rel. IA-3117; File No. 3-14147)
In the Matter of Eric R. Majors
Eric R. Majors (Majors), a former Colorado investment adviser, has been barred from association with any investment adviser. The sanction was ordered in an administrative proceeding before an administrative law judge, following a guilty plea in a criminal proceeding for conspiracy and a court-ordered injunction against him. In March 2010, judgment was entered against Majors after he pleaded guilty to conspiracy to defraud the SEC and the IRS. In July 2010, he was enjoined in a civil proceeding from violating the antifraud and other provisions of the federal securities laws. The wrongdoing that underlies the criminal matter and civil injunction occurred between 2000 and 2005 in connection with registration and sales of stock in shell corporations. (Initial Decision No. 409; File No. 3-13975)
SEC Files Civil Charges Against Jennifer L. Dodge, Grant M. Carroll, Tamara M. Davis, and The Cornerstone TKD, LLC for Offering Fraud
On November 29, the Securities and Exchange Commission filed a civil action in United States District Court in Austin, Texas against Jennifer Dodge, Grant Carroll, Tamara Davis, and The Cornerstone TKD, LLC (Cornerstone). The Commission's complaint alleges that, from April 2007 to May 2008, the defendants raised approximately $9 million from 20 investors nationwide by selling unregistered, high-yield interests in a Prime Bank scheme through the now-defunct company, Quantum Funding Strategies, LLC. Prime Bank schemes lure investors with the promise of astronomical profits and the chance to be a part of an exclusive, international investing program.
The Commission's complaint alleges that investors were told that their funds would be pooled and placed with an escrow agent and then used to secure money from high-net worth "funders." That money would be held in a "blocked funds account" and would be used as collateral for "traders" to buy and sell bank notes and other instruments. Dodge, together with Carroll, Davis and her company, Cornerstone, promised investors they would receive between 25% and 100% weekly returns on their investments, without risking loss of investment principal. According to the complaint, Dodge also misled investors about her past success with similar trading schemes, and Carroll misrepresented that he was a licensed securities broker and that he had verified the validity of the Private Placement program. The complaint further alleges that investors never earned any returns because the defendants never completed the promised transactions.
The Commission's complaint alleges that Dodge and Carroll violated Section 17(a) of the Securities Act of 1933 (Securities Act), and Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder. The complaint further alleges that all the defendants violated Sections 5(a) and 5(c) of Securities Act, and 15(a)(1) of the Exchange Act. The complaint seeks disgorgement from Dodge and Carroll, and injunctive relief and civil money penalties from all the defendants. Without admitting or denying the Commission's allegations, Dodge partially settled the Commission's charges by consenting to the entry of an agreed judgment enjoining her from violating Securities Act Sections 5(a), 5(c) and 17(a) and Exchange Act Section 10(b) and Rule 10b-5 thereunder. Dodge also consented to a court order providing that, upon motion of the Commission, the court will determine the appropriateness and amounts of disgorgement, prejudgment interest and civil money penalty. [SEC v. Jennifer L. Dodge, Grant M. Carroll, Tamara M. Davis, and The Cornerstone TKD, LLC, Civil Action No. 1:10-cv-00913, United States District Court for the Western District of Texas (Austin Division)] (LR-21759)
Immediate Effectiveness of Proposed Rule Changes
A proposed rule change (SR-NYSEArca-2010-104) filed by NYSE Arca amending its options trading rules in order to extend the penny pilot in options classes in certain issues through December 31, 2011 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 November 29. (Rel. 34-63376)
A proposed rule change (SR-CBOE-2010-102) filed by the Chicago Board Options Exchange related to the Penny Pilot Program 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 November 29. (Rel. 34-63386)
A proposed rule change filed by the Financial Industry Regulatory Authority (SR-FINRA-2010-063) to extend to July 16, 2011, the pilot period for FINRA Rule 4240 (Margin Requirements for Credit Default Swaps) 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 29. (Rel. 34-63391)
A proposed rule change (SR-NYSEAmex-2010-107) filed by NYSE Amex amending its options trading rules in order to extend the penny pilot in options classes in certain issues through December 31, 2011 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 November 29. (Rel. 34-63393)
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