Fee Rate Advisory #5 for Fiscal Year 2011
Today the President signed H.R. 3082, the continuing resolution that will fund federal agencies including the Securities and Exchange Commission for approximately two more months. H.R. 3082 stipulates that it shall be deemed the Commission's "regular appropriation" for FY 2011, and therefore will trigger changes in the rates of fees collected by the SEC.
Accordingly, effective Dec. 27, 2010, the Section 6(b) fee rate applicable to the registration of securities, the Section 13(e) fee rate applicable to the repurchase of securities, and the Section 14(g) fee rate applicable to proxy solicitations and statements in corporate control transactions will increase from their current rate of $71.30 per million dollars to a new rate of $116.10 per million dollars. The Section 6(b) rate is also the rate used to calculate the fees payable with the Annual Notice of Securities Sold Pursuant to Rule 24f-2 under the Investment Company Act of 1940.
All filings submitted to the SEC before 5:30 p.m. ET, and filings pursuant to Rule 462(b) (17 C.F.R. 230.462(b)) submitted to the SEC before 10:00 p.m. ET, on Dec. 23, 2010, will be subject to the current fee rate of $71.30 per million dollars. Rule 462(b) filings submitted after 10:00 p.m. ET, and all other filings submitted after 5:30 p.m. ET, on Dec. 23, 2010, shall be deemed filed as of the next business day, Dec. 27, 2010, under Section 232.13 of Regulation S-T (17 C.F.R. 232.13), and be subject to the new fee rate of $116.10 per million dollars. Filers with questions about the new Section 6(b), Section 13(e), or Section 14(g) fee rates should call the SEC at (202) 551-8900.
In addition, effective Jan. 21, 2011, the Section 31 fee rate applicable to securities transactions on exchanges and over-the-counter markets will increase from its current rate of $16.90 per million dollars in transactions to a new rate of $19.20 per million dollars in transactions. The Section 31 assessment on security futures transactions will remain unchanged at $0.0042 per round turn transaction. The Division of Trading and Markets' Office of Interpretation and Guidance is available for questions relating to Section 31, at (202) 551-5777 or at firstname.lastname@example.org.
Under the Investor and Capital Markets Fee Relief Act, the Commission is required to adjust the filing and securities transaction fee rates on an annual basis to levels the SEC estimates will generate collections equal to numeric targets set in the statute. A copy of the Commission's April 29, 2010, order regarding fee rates for fiscal year 2011 is available at http://www.sec.gov/rules/other/2010/33-9122.pdf. (Press Rel. 2010-255)
Closed Meeting - Wednesday, December 29, 2010 - 2:00 p.m.
The subject matter of the Closed Meeting scheduled for Wednesday, December 29, will be: institution and settlement of injunctive actions; institution and settlement of administrative proceedings; consideration of amicus participation; 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.
In the Matter of James M. Schneider, CPA
On December 22, the Commission issued an Order Instituting Administrative Proceedings Pursuant to Rule 102(e) of the Commission's Rules of Practice, Making Findings, and Imposing Remedial Sanctions (Order) against James M. Schneider, who was the CFO of Dell Inc.
In the Order the Commission finds that on Oct. 13, 2010, the United States District Court for the District of Columbia entered a final judgment permanently enjoining Schneider, by consent, from future violations of Securities Act of 1933 Sections 17(a)(2) and 17(a)(3), Securities Exchange Act of 1934 (Exchange Act) Section 13(b)(5) and Rules 13a-14, 13b2-1, and 13b2-2 thereunder, and from aiding and abetting violations of Exchange Act Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) and Rules 12b-20, 13a-1, and 13a-13 thereunder. Schneider was also ordered to pay $83,096 in disgorgement of ill-gotten gains, $38,640 in prejudgment interest, and a $3 million civil money penalty.
The Commission's complaint alleged, among other things, that Dell fraudulently committed various disclosure and accounting violations through the conduct of Schneider and others. The Complaint alleged that Schneider made or was involved in making material misrepresentations in earnings calls and material misrepresentations and omissions in Dell's annual reports on Form 10-K for the fiscal years 2003 through 2006 and in the company's quarterly reports on Form 10-Q for the first three quarters of fiscal years 2003 through 2006 and the first quarter of fiscal 2007 relating to the impacts on Dell's operating results from payments from Intel Corp. The material misrepresentations during earnings calls misled investors as to the bases for Dell's success in meeting or exceeding analyst consensus EPS estimates and the reasons for Dell's sharp drop in operating results in its second quarter of fiscal year 2007. The disclosure violations misrepresented to investors the bases for Dell's increasing profitability and failed to disclose information required by Item 303 of Regulation S-K.
The Commission's complaint also alleged, among other things, that Schneider directed and engaged in improper accounting that resulted in Dell filing materially false and misleading financial statements in the company's annual reports on Form 10-K for the fiscal years 2002 through 2004, and in the company's quarterly reports on Form 10-Q for the first three quarters of fiscal years 2002 through 2004 and the first two quarters of fiscal 2005. The Complaint alleged that Schneider directed and engaged in a number of improper accounting practices in contravention of generally accepted accounting principles that materially misstated Dell's financial results and enabled the company to report lower operating expense as a percentage of revenue. These practices included improperly manipulating excess reserve balances and improperly accounting for certain restructuring costs.
Based on the above, the Order suspends Schneider from appearing or practicing before the Commission as an accountant with the right to apply for reinstatement after five years from the date of the Order. Schneider consented to the issuance of the Order without admitting or denying the findings in the Order, except for the finding of the entry of the injunction by the United States District Court for the District of Columbia (SEC v. Dell Inc., Michael S. Dell, Kevin B. Rollins, James M. Schneider, Leslie L. Jackson, Nicholas A. R. Dunning, Civil Action No. 1:10-cv-01245 (RJL) (D. Columbia)] (LR-21599)). (Rel. 34-63600; AAE Rel. 3222; File No. 3-14171)
SEC v. Jason R. Hyatt, Jay Johnson and Hyatt Johnson Capital, LLC
The Securities and Exchange Commission announced that on Dec. 8, 2010, the Special March 2010 Grand Jury for the Northern District of Illinois returned a three-count indictment for Jay D. Johnson, a defendant in the Commission's above captioned litigation. U.S. v. Jay D. Johnson, Criminal Action No. 1:10-cr-1030 (N.D. Ill.) (Norgle, J.). This indictment consisted of three counts of wire fraud (18 USC 1343) in connection with funds Johnson obtained from his investment advisory clients for the purpose of lending them to an area physician. Instead of using the funds as stated the indictment alleges Johnson used the funds for his own personal benefit and to make payments to other investors.
Previously, on April 18, 2008, the Commission filed a civil injunctive complaint alleging that Defendants Hyatt, Johnson, and HJ Capital, from approximately 2003 through 2007, while acting as unregistered broker-dealers and investment advisers, misappropriated at least $5.4 million in investor funds. The Complaint alleged that, as a result of their conduct, the Defendants violated Section 17(a) of the Securities Act of 1933, Sections 10(b) and 15(a)(1) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Sections 206(1), 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder. [SEC v. Jason R. Hyatt, Jay Johnson and Hyatt Johnson Capital, LLC, Civil Action No. 1:08-cv-2224 (N.D. Ill.) (Lindberg, J.)] (LR-21788)
SEC Charges Kenneth W. Burnt and Two Related Entities, Perimeter Wealth Financial Services, Inc. and KSB Financial, Inc., with Securities Fraud and Court Orders Entry of Temporary Injunctions Against All Defendants
On Dec. 20, 2010 the Securities and Exchange Commission filed a civil injunctive action in U.S. District Court for the Northern District of Georgia, charging Kenneth W. Burnt (Burnt), Perimeter Wealth Financial Services, Inc. (Perimeter Wealth) and KSB Financial, Inc. (KSB), with violations of federal securities laws for making false and misleading statements in connection with an unregistered covered-call equities trading program.
The Commission's Complaint alleges that Burnt, through two entities which he controls, Perimeter Wealth and KSB, raised approximately $4.5 million from more than 20 investors. Burnt represented to investors that: (1) investment returns were guaranteed to be between 8% to 12% per annum; (2) Burnt would not be paid any funds for his advisory services unless investors were earning 8% minimum annualized returns; and (3) any principal losses or shortfalls to the guaranteed returns would be contractually covered by a reserve account funded by defendants. These representations were false in that Burnt failed to disclose to investors that he had begun directly drawing on investor funds prior to their earning the minimum guaranteed interest and that the purported reserve account was inadequately funded and incapable of covering the investor losses incurred. Since its inception through November 30, 2010, the defendants' covered-call program has suffered net equalized losses of approximately 15%.
In its Complaint, the Commission alleges that Burnt and Perimeter Wealth violated Sections 5 and 17(a) of the Securities Act of 1933 (Securities Act), Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule10b-5 thereunder, and Sections 206(1), 206(2) and 206(4) of the Investment Advisers Act (Advisers Act). The Complaint further alleges that KSB violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and Sections 206(1) and 206(2) of the Advisers Act.
On Dec. 21, 2010 the Honorable William S. Duffey, Jr., United States District Judge for the Northern District of Georgia, entered an order preliminarily enjoining the defendants' violative conduct, instituting a limited asset freeze, and requiring defendants to produce an accounting of all funds raised in violation of the federal securities laws as well as an accounting of the disposition and use of said proceeds. The defendants consented to the order without admitting or denying the allegations of the Commission's complaint. The SEC acknowledges the assistance of the U.S. Attorney's Office for the Northern District of Georgia and the Federal Bureau of Investigation in this matter. [SEC v. Kenneth W. Burnt, Perimeter Wealth Financial Services, Inc., and KSB Financial, Inc., Civil Action No. 1:10-cv-4121-WSD (N.D. Ga.)] (LR-21789)
SEC v. Amit V. Patel
The Securities and Exchange Commission today announced fraud charges and an asset freeze against Amit V. Patel (Patel), a resident of Shoreview, Minnesota, for operating a fraudulent scheme in which in which he raised at least $2.5 million from at least five individuals that he met in the Indian-American community and Hindu temples in Minnesota.
The SEC's complaint, filed in the U.S. District Court for the District of Minnesota, alleges that Patel, from at least 2008 through the present, also received millions of dollars more from dozens of other individuals. The complaint alleges that Patel took advantage of his cultural affinity and shared religious heritage with his victims, and exploited their trust in his standing in the community.
At the SEC's request for emergency relief, the Hon. Joan N. Ericksen, United States District Court, District of Minnesota, issued a temporary restraining order against Patel and an order freezing all assets under the control of Patel, in addition to granting other emergency relief.
According to the allegations in the SEC complaint, Patel's scheme had two parts. First, the complaint alleges, Patel sold at least four investors nearly $1.4 million of promissory notes by falsely promising to grow their money through a low-risk stock option trading strategy. Patel guaranteed to pay these investors fixed monthly returns ranging from 1-2% from his trading profits, and guaranteed the repayment of their principal. Patel actually misappropriated over $572,000 of this money to pay his own living expenses; to repay personal debts to family, friends, and third parties; and to make the monthly payments promised to his other investors. Patel pooled the rest of the money in his personal brokerage accounts, where he traded with a self-described high risk and speculative strategy called Iron Condor. His trading lost almost all of the investors' money. Second, Patel persuaded at least four investors to grant him "limited trading authority" over at least $1.1 million in additional funds deposited in investors' online brokerage accounts. Patel falsely promised to trade on their behalf using a safe and conservative strategy. Patel again invested using the same high risk and speculative Iron Condor strategy, which resulted in net losses of at least $947,815.
According to the SEC complaint, Patel violated Section 17(a) of the Securities Act of 1933; Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder; and Sections 206(1), 206(2), and 206(4) of the Investment Advisers Act of 1940 and Rule 206-4(8) thereunder. [SEC v. Amit V. Patel, Civil Action No. 0:10-cv-04937 (D. Minn.)] (LR-21790)
SEC Charges Florida-Based Company and its Officers in Overseas Offering Fraud
The Securities and Exchange Commission today charged Jupiter, Florida-based Pharma Holdings, Inc., its CEO Edward Klapp IV, and its CFO Edward Klapp Jr., with violations of the antifraud provisions of the federal securities laws. The SEC's complaint alleges that from 2005 through September 2009, Pharma Holdings, purportedly in the pharmaceutical supply business, and the Klapps raised approximately $5 million from at least 80 European investors, primarily residing in the United Kingdom, through the fraudulent offer and sale of Pharma Holdings stock.
The SEC's complaint alleges that Pharma Holdings and the Klapps engaged various sales offices and agents to conduct Pharma Holdings' offerings, and also directly offered shares in later offerings to existing shareholders. According to the SEC's complaint, in connection with its stock offerings, Pharma Holdings issued false press releases and made false postings on its website overstating Pharma Holdings' sales revenues and net profits, and touting non-existent business agreements with multinational corporations.
The complaint further alleges that Pharma Holdings and its sales agents repeatedly told investors and prospective investors, both in written materials from Klapp IV and on the company's website, that Pharma Holdings would soon conduct an IPO or be bought out by a large corporation or mutual fund. The complaint also alleges that Klapp Jr. falsely promised investors an imminent IPO. Further, the complaint alleges that Pharma Holdings and the Klapps failed to disclose that Edward Klapp IV had been criminally convicted of a felony involving fraud.
The SEC's enforcement action charges Pharma Holdings and the Klapps with violating 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 SEC is seeking permanent injunctions, disgorgement and financial penalties against Pharma Holdings, Klapp IV and Klapp Jr., and the imposition of officer and director bars against Klapp IV and Klapp Jr.
The SEC wishes to acknowledge the assistance of the United Kingdom's Financial Services Authority. [SEC v. v. Pharma Holdings, Inc., Edward Klapp IV and Edward Klapp Jr. Civil Action No. 10-cv-81615 (S.D. Fla.)] (LR-21791)
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