SEC News Digest

ENFORCEMENT PROCEEDINGS

In the Matter of Hudson Highland Group, Inc.

On Jan. 10, 2011, the Commission issued an Order Instituting Cease-and-Desist Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings, and Imposing a Cease-and-Desist Order and a Penalty (Order) against Hudson Highland Group, Inc. (Hudson).

From 2003 to 2007, Hudson's North America segment (HNA) failed to consistently comply with tax laws that required it to collect sales taxes from its customers, and to remit them to the appropriate taxing jurisdictions as their fiduciary. The reason for this failure was that HNA's accounting software was incapable of performing an automated analysis of the correct taxes owed. If HNA failed to collect and remit the taxes as required, and if HNA's customers did not pay the required sales taxes, either at the time of sale or subsequently, HNA became liable for its customers' tax liabilities, plus potential interest and penalties.

Although Hudson executives began to learn about this issue in 2003, Hudson did not fully implement a system for calculating and invoicing sales taxes as required until January 2007. During this period, Hudson's books and records did not accurately reflect the company's sales tax liabilities. Ultimately, Hudson paid approximately $3.9 million to various jurisdictions to settle its customers' unpaid sales tax liabilities incurred from 2001 to 2007.

The Commission finds that Hudson violated Exchange Act Section 13(b)(2)(B) by failing to devise and maintain a system of internal accounting controls for sales taxes that were sufficient to provide reasonable assurances that the company's transactions were recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles. The Commission also finds that Hudson violated Exchange Act Section 13(b)(2)(A) because its books and records did not accurately reflect its tax liabilities.

Without admitting or denying the SEC's findings, Hudson Highland Group agreed to the entry of an Order of the Commission requiring it to cease and desist from committing or causing any violations and any future violations of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and to pay a $200,000 penalty. (Rel. 34-63688; AAE Rel. 3226; File No. 3-14182)

Revocation of Registration of Securities of Alternative Construction Technology, Inc.

The Securities and Exchange Commission announced the revocation, pursuant to Section 12(j) of the Securities Exchange Act of 1934 (the Exchange Act), of the registration of each class of securities of Alternative Construction Technologies, Inc. (Alternative Construction), a Florida corporation, registered with the Commission pursuant to Section 12 of the Exchange Act. The company currently exists as a shell company and is quoted on the "pink sheets" market under the symbol ACCY.PK. In its Order revoking the registration of securities of Alternative Construction, the Commission found that Alternative Construction failed to comply with Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder, while its common stock was registered with the Commission, in that: (i) it failed to file an Annual Report on Form 10-K since the report for the fiscal year ended December 31, 2006; and (ii) it failed to file any quarterly reports on Form 10-Q since the report for the fiscal quarter ended September 30, 2008. As noted in the Form 8-K filed by Alternative Construction on January 3, 2009, the audit report in Alternative Construction's 2007 annual report was withdrawn by the audit firm, thereby rendering the 2007 annual report, filed March 7, 2008, insufficient to satisfy Alternative Construction's Exchange Act reporting requirements for 2007.

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 the company.

Further, brokers and dealers should be alert to the fact that 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 pursuant to the preceding sentence.

Without admitting or denying the findings in the Order Instituting Administrative Proceedings Pursuant to Section 12(j) of the Securities Exchange Act of 1934, Making Findings, and Revoking Registration of Securities, Alternative Construction consented to the entry of the order. (Rel. 34-63689; File No. 3-14183)

SEC v. Michael R. Drogin, CPA

The Securities & Exchange Commission announced today that it has filed a settled enforcement action against Michael R. Drogin, a certified public accountant licensed in New York and New Jersey. The Commission's complaint charges that, between 2005 and 2008, while he was a partner with the accounting firm Liebman Goldberg & Drogin, LLP in Garden City, New York, Drogin performed audit, review, and other accounting work for three companies in violation of a Commission order issued on May 6, 2003. That order barred Drogin from appearing or practicing before the Commission as an accountant based on his failure to exercise due professional care in his audit of the financial statements of a small telecommunication company. In the Matter of Michael R. Drogin, CPA, Admin. Proc. No. 3-10762 (May 6, 2003).

The Commission's complaint alleges that Drogin began violating the 2003 Order as early as the fall of 2005, when he participated in auditing the financial statements of a small company that then filed a registration statement with the Commission to become a public company. The financial statements, and the firm's audit report, were included in the registration statement and subsequent amendments. Thereafter, Drogin violated the 2003 Order by:

• participating in auditing the 2007 financial statements of all three companies, which were incorporated into various filings by the companies, including registration statements, a proxy statement, and an annual report;
• reviewing quarterly and other Commission filings made by the three companies; and
• advising the respective companies' management regarding disclosures contained in those filings.

In addition to performing audit and review work, Drogin also violated the 2003 Order by assisting two of the companies in responding to comments from the staff of the Commission's Division of Corporation Finance on the registration statements described above.

The Commission's complaint also alleges that Drogin issued audit reports in 2008 for the three companies without having completed the audits. The audit reports issued by Drogin falsely stated that an audit had been performed in accordance with applicable auditing standards and provided a reasonable basis for an unqualified report. The complaint alleges that Drogin knew the companies would include the fraudulent audit reports in annual reports and a registration statement filed with the Commission.

The complaint charges Drogin with violating the antifraud provisions of the federal securities laws by issuing the fraudulent audit reports, and with aiding and abetting violations of the reporting requirements of the securities laws. The complaint also charges Drogin with violating the 2003 Order by repeatedly engaging in conduct between the fall of 2005 and 2008 that constituted appearing and practicing before the Commission as an accountant.

Without admitting or denying the allegations in the complaint, Drogin has consented to the entry of a final judgment that: permanently enjoins Drogin from violating, directly or indirectly, Section 17(a) of the Securities Act of 1933 (the "Securities Act"), Sections 10(b) and 13(a) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rules 10b-5, 12b-20 and 13a-1 thereunder; restrains and enjoins him from violating the Commission's 2003 Order, as amended on January 11, 2011 (Release No. 34-63690); and orders him to pay disgorgement and prejudgment interest of $43,612.04, and a civil penalty in the amount of $38,953.17. The settlement is subject to the court's approval.

In a related proceeding, on January 11, 2011, the Commission entered an Order amending the 2003 Order to remove the time limit on Drogin's prior suspension. Drogin consented to the entry of the amended Order without admitting or denying any of the findings. [SEC v. Michael R. Drogin, CPA, Civ. Action No. 11-0063 (RJL) (D.D.C.)] (LR-21804); (Administrative Proceeding - Rel. 34-63690; AAE Rel. 3227; File No. 3-10762)

Securities and Exchange Commission Orders Hearing on Registration Suspension or Revocation Against Seven 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 seven companies for failure to make required periodic filings with the Commission:

• Campo Electronics, Appliances & Computers, Inc. (CMPOQ)
• Capco Energy, Inc.
• Carmel Energy, Inc. (CRMY)
• Celexx Corp. (CLXX)
• CenCor, Inc.
• Central Realty Investors, Inc.
• Checkmate Electronics, Inc.

In this Order, the Division of Enforcement (Division) alleges that the seven 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. 34-63697; File No. 3-14185)

In the Matter of Charles Schwab Investment Management; Charles Schwab & Co., Inc.; and Schwab Investments

On January 11, the Commission issued an the Order Instituting Administrative and Cease-and-Desist Proceedings Pursuant to Section 8A of the Securities Act of 1933, Sections 15(b) and 21C of the Securities Exchange Act of 1934, Sections 203(e) and 203(k) of the Investment Advisers Act of 1940, and Section 9(f) of the Investment Company Act of 1940, Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order (Order). The Order finds that Charles Schwab Investment Management (CSIM) and Charles Schwab & Co., Inc. (CS&Co.) willfully violated anti-fraud provisions of the Securities Act of 1933, Sections 17(a)(2) and (3); CSIM willfully violated anti-fraud provisions of the Investment Advisers Act of 1940, Section 206(4) and Rule 206(4)-8; Schwab Investments violated Section 13(a) of the Investment Company Act of 1940 by deviating from its concentration policy, and CSIM willfully aided and abetted and caused the violation; CSIM and CS&Co. willfully aided and abetted and caused violations of the false filings provision of the Investment Company Act, Section 34(b); and CS&Co. violated Section 15(g) (formerly Section 15(f)) of the Securities Exchange Act of 1934, and CSIM violated Section 204A of the Advisers Act, both of which require policies and procedures that are reasonably designed, taking into consideration the nature of the entities' businesses, to prevent the misuse of material, nonpublic information.

Based on the above, the Order requires CSIM, CS&Co. and Schwab Investments to cease and desist from committing or causing future violations of the federal securities laws, and to comply with certain undertakings including correction of all disclosures regarding the funds' concentration policy. In addition, under the Order, CSIM and CS&Co., are censured and required to retain an independent consultant to review and make recommendations about their policies and procedures to prevent the misuse of material, nonpublic information. CSIM, CS&Co. and Schwab Investments consented to the issuance of the Order without admitting or denying any of the findings in the Order.

The Commission today also filed a related civil action in the District Court for the Northern District of California concerning the same conduct. Without admitting or denying the findings in the SEC's order or the allegations in the SEC's complaint, CSIM and CS&Co. agreed to pay a total of $118,944,996, including $52,327,149 in disgorgement of fees by CSIM, a $52,327,149 penalty against CSIM, a $5 million penalty against CS&Co., and pre-judgment interest of $9,290,698. Some of CSIM's disgorgement may be deemed satisfied, up to a maximum of $26,944,996, for payments made within the next 60 days to settle related investigations by FINRA or state securities regulators.

The SEC seeks to have payments placed in a Fair Fund for distribution to harmed investors, and the related recoveries by other regulators, such as FINRA, may be contributed to the Fair Fund. The payments and any Fair Fund are subject to approval by the U.S. District Court for the Northern District of California.

The SEC also filed a related complaint in federal court against CSIM's former chief investment officer for fixed income, Kimon Daifotis, as well as Schwab official Randall Merk, who is an executive vice president at CS&Co. and was president of CSIM and a trustee of the YieldPlus and other Schwab funds. The SEC alleges that Daifotis and Merk committed fraud and other securities law violations in connection with the offer, sale and management of the YieldPlus Fund. [SEC v. Kimon P. Daifotis and Randall Merk, Civil Action No. CV-11-0137 MEJ (N.D. Cal.)] (LR-21805); SEC v. Charles Schwab Investment Management, Charles Schwab & Co., Inc., and Schwab Investments, Civil Action No. CV-11-0136 EMC (N.D. Cal.)] (LR-21806); (Administrative Proceeding - Rels. 33-9171; 34-63693, IA-3136, IC-29552; File No. 3-14184)

SEC Obtains Judgment Against Florida Stockbroker Stephen Fayette

In the Matter of Stephen Fayette

The Securities and Exchange Commission announced today that on Dec. 30, 2010, the United States District Court for the Northern District of Texas entered a Final Judgment against Stephen Fayette (Fayette), of Sarasota, Florida. The Commission's complaint alleged that Fayette was part of a scheme to pump and dump the stock of ConnectAJet.com, Inc. According to the complaint, ConnectAJet.com, Inc., of Austin, Texas, issued 30 million shares of stock in an illegal, unregistered offering to certain penny stock promoters. To pump up demand for the stock, ConnectAJet.com, Inc. and its chief executive, attorney Martin T. Cantu, launched a nationwide advertising campaign including false press releases. The complaint alleged that Fayette, a registered representative at Fagenson & Co., Inc. facilitated the scheme by liquidating ConnectAJet.com, Inc. shares on behalf of multiple customers, including the penny stock promoters. According to the complaint, Fayette ignored numerous red flags and failed to make a reasonable inquiry under the circumstances to ensure that his customers were not acting as underwriters.

The Final Judgment permanently enjoins Fayette from violating Sections 5(a) and (c) of the Securities Act of 1933 and requires him to pay disgorgement, prejudgment interest and civil penalties totaling $313,257. Fayette consented to the entry of the judgment, which also bars him from participating in any penny stock offerings. Fayette, who previously worked for registered broker dealers GLB Trading, Inc. and Franklin Ross, Inc., also consented to an order barring him from association with any broker or dealer.

Previously, the Court entered Final Judgments against Martin T. Cantu, his father Martin M. Cantu, one of the promoters, Verona Funds LLC, and relief defendant Edward Spahiu. Cantu and Martin M. Cantu were held jointly and severally liable for $632,327 in disgorgement. In addition, they were ordered to pay $260,000 and $130,000 respectively in civil penalties. The Commission's case against the remaining defendants is pending. [SEC v. ConnectAJet.com, Inc., et al., Case No. 3-09 CV-01742-B (N.D. Tex.)] (LR-21803)

In addition, on January 11, the Commission issued an Order Instituting Administrative Proceedings Pursuant to Section 15(b) of the Securities Exchange Act of 1934, Making Findings and Imposing Remedial Sanctions (Order) against Fayette. The Order finds that on Dec. 30, 2010, in the civil action described above, a final judgment was entered by consent against Fayette, permanently enjoining Fayette from future violations of Section 5 of the Securities Act of 1933. The Order finds that Fayette was a registered representative of three registered broker dealers: GLB Trading, Inc. from approximately July 2008 to April 2009, Fagenson & Co., Inc. from July 2007 to July 2008, and Franklin Ross, Inc. from October 2004 to August 2007.

Based on the above, the Order bars Fayette from association with any broker or dealer. Fayette consented to the issuance of the Order without admitting or denying any of the findings except he admitted the entry of the final judgment.

The Commission acknowledges the assistance of the Financial Industry Regulatory Authority (FINRA) in these matters. (Rel. 34-63698; File No. 3-14186)

SELF-REGULATORY ORGANIZATIONS

Immediate Effectiveness of Proposed Rule Changes

A proposed rule change filed by The Depository Trust Company (SR-DTC-2010-17) to revise the fees for certain services provided by DTC has become effective upon filing pursuant to Section 19(b)(3) (A) (ii) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of January 10. (Rel. 34-63659)

A proposed rule change filed by BATS Y-Exchange (SR-BYX-2011-001) related to fees for use of BATS Y-Exchange, Inc. 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 January 10. (Rel. 34-63662)

A proposed rule change filed by BATS Exchange (SR-BATS-2011-001) related to fees for use of BATS Exchange, Inc. 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 January 10. (Rel. 34-63663)

A proposed rule change filed by New York Stock Exchange to amend the Exchange price list (SR-NYSE-2011-01) 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 January 10. (Rel. 34-63669)

A proposed rule change filed by the Financial Industry Regulatory Authority (SR-FINRA-2011-002) to extend a TRACE pilot program 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 January 10. (Rel. 34-63673)

A proposed rule change (SR-C2-2011-001) filed by the C2 Options Exchange relating to PULSe fees 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 January 10. (Rel. 34-63677)

A proposed rule change filed by the NASDAQ Stock Market to modify pricing for NASDAQ member using the NASDAQ Market Center (SR-NASDAQ-2010-166) 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 January 10. (Rel. 34-63678)

A proposed rule change (SR-Phlx-2010-187), filed by NASDAQ OMX PHLX relating to routing fees 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 January 10. (Rel. 34-63679)

A proposed rule change (SR-C2-2011-002), filed by C2 Options Exchange to amend the C2 Fees Schedule and C2 Rule 3.1 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 January 10. (Rel. 34-63680)

Approval of Proposed Rule Change

The Commission approved a proposed rule change (SR-NSCC-2010-09) under Section 19(b)(1) of the Exchange Act by the National Securities Clearing Corporation. The rule change will amend NSCC's rules and procedures to establish a new Universal Trade Capture application and an automated Special Representative facility. Publication is expected in the Federal Register during the week of January 10. (Rel. 34-63668)

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