Friday, August 29, 2008 3:50:36 PM
August 6, 2008 SEC News Digest
Issue 2008-152
COMMISSION ANNOUNCEMENTS
Closed Meeting - August 5, 2008 - 5:00 p.m.
The Commission held a closed meeting on August 5, 2008, at 5:00 p.m. The subject matter of the closed meeting was: institution and settlement of injunctive actions; and other matters related 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.
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ENFORCEMENT PROCEEDINGS
In the Matter of Kent D. Nelson
On August 1, 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 and Notice of Hearing (Order) against Kent D. Nelson (Nelson).
In the Order, the Division of Enforcement (Division) alleges that on Sept. 14, 2005, Nelson, a registered representative and investment adviser in San Diego, California, pleaded guilty to one count of mail fraud in violation of Title 18 United States Code, Section 1341, in the criminal action entitled United States v. Kent Nelson, Criminal Information No. 05-2021 JP, in the United States District Court for the District of New Mexico. The information to which Nelson pleaded guilty alleged that, from December 1999 through March 2005, Nelson paid substantial amounts of money to corruptly influence the Treasurer of the State of New Mexico to award securities work to Nelson, and used the United States mail to pay kickbacks to the Treasurer of the State of New Mexico. The Division further alleges that on May 8, 2007 Nelson pleaded guilty and was convicted on state racketeering charges in the State of New Mexico based on the same facts, and that on Jan. 3, 2006, the California Corporations Commissioner issued an order barring Nelson from affiliation with an investment adviser.
A hearing will be scheduled before an administrative law judge to determine whether the allegations contained in the Order are true, to provide Nelson an opportunity to respond to these allegations, and to determine what sanctions, if any, are appropriate and in the public interest. The Order directs the administrative law judge to issue an initial decision within 210 days from the date of service of the Order. (Rel. IA-2765; 34-58287; File No. 3-13112)
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In the Matter of Ernst & Young LLP, John F. Ferraro, CPA, and Michael G. Lutze, CPA
On August 5, the Commission issued an Order Instituting Public Administrative and Cease-and-Desist Proceedings Pursuant to Sections 4C and 21C of the Securities Exchange Act of 1934 and Rule 102(e) of the Commission's Rules of Practice, Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order against Ernst & Young LLP, John F. Ferraro, CPA and Michael G. Lutze, CPA. The Order finds that E&Y had a direct business relationship with an outside director of three of its audit clients during a 19-month period that impaired its independence as those clients' auditor. The Order finds that Respondent Ferraro caused E&Y to enter into the independence-impairing relationship despite knowing that the director was then serving on the boards of two companies that Ferraro knew to be audit clients of the firm. In addition, the Order finds that Respondent Lutze, in responding to a question from one of the audit clients concerning E&Y's independence, failed to fully inform the client about an email he had received concerning the business relationship. The Order finds, as a result of this conduct, that E&Y, Ferraro and Lutze each engaged in improper professional conduct pursuant to Exchange Act Section 4C and Rule 102(e) of the Commission's Rules of Practice; that E&Y violated (and that Ferraro was a cause of E&Y's violation of) Rule 2-02(b) of Regulation S-X; and that E&Y caused all three audit clients to violate (and that Ferraro was a cause of two of those clients' violations of) Exchange Act Sections 13(a) and 14(a), and Exchange Act Rules 13a-1 and 14a-3.
Based on the above, the Order censures E&Y, Ferraro and Lutze; requires E&Y to disgorge $2,381,965 in audit fees plus $537,022.79 in prejudgment interest; requires Ferraro to cease and desist from causing any violations and any future violations of Rule 2-02 of Regulation S-X, and from causing any violations and any future violations of Sections 13(a) and 14(a) of the Securities Exchange Act of 1934, and Rules 13a-1 and 14a-3 thereunder; and denies Lutze the privilege of appearing or practicing before the Commission as an accountant, but allows him to request reinstatement after one year. (Rel. 34-58309; AAE Rel. 2858; File No. 3-13114)
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In the Matter of Mark C. Thompson
On August 6, the Commission issued an Order Instituting Cease and-Desist Proceedings, Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order against Mark C. Thompson. The Order finds that, while serving as an outside director of three different public companies, Thompson had a direct business relationship with those companies' outside auditor. The Order further finds, among other things, that Thompson failed to fully disclose the business relationship to the three companies on his Director and Officer questionnaires and in the context of board votes concerning proxy solicitations. The Order finds that, as a result of his conduct, Thompson was a cause of two of the companies' violations of Exchange Act Sections 13(a) and 14(a) and Rules 13a-1 and 14a-3 thereunder, and was a cause of all three companies' violations of Exchange Act Section 14(a) and Rule 14a-9 thereunder.
Based on the above, the Order requires Thompson to cease and desist from causing any violations and any future violations of Sections 13(a) and 14(a) of the Securities Exchange Act of 1934, and Rules 13a-1, 14a-3 and 14a-9 thereunder; and requires Thompson to disgorge $100,662.33 in director compensation plus $23,254.94 in prejudgment interest. (Rel. 34-58310; AAE Rel. 2859; File No. 3-13115)
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In the Matter of Timothy L. Bradshaw
On August 6, the Commission issued an Order Instituting Administrative Proceedings Pursuant to Section 15(b) of the Securities Exchange Act of 1934 and Notice of Hearing (Order) against Timothy L. Bradshaw (Bradshaw). In the Order, the Division of Enforcement alleges that Bradshaw was permanently enjoined from future violations of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 (Securities Act), Sections 10(b) and 15(a) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder, based on the entry, on July 10, 2008, of an order by the United States District Court for the Northern District of Georgia in the civil action entitled Securities and Exchange Commission v. Scott B. Hollenbeck, Timothy L. Bradshaw and Steven K. Gilley, Civil Action Number 1:05-CV-1272-WBH.
The Commission's complaint alleged that Mobile Billboards of America, Inc. (MBA) sold more than $60 million of the billboard frame investments. The investments consisted of mobile billboard frames that were purportedly mounted on the sides of trucks to hold advertising posters. Outdoor Media Industries (Outdoor Media), a division of International Payphone controlled by the promoters of MBA, leased the billboards back from investors for seven years for monthly payments equivalent to 13.49% annually. Reserve Guaranty, another entity controlled by the MBA promoters, purportedly operated as a sinking fund and issued investors certificates that purportedly guaranteed funding for MBA's commitment to buy back the billboards at the full purchase price at the end of the seven-year lease. The complaint alleged that the investment program operated as a Ponzi scheme because the collective business did not generate sufficient advertising revenue to make monthly lease payments to investors and, instead, relied on new investor money. The complaint further alleged that MBA's sales materials made false claims about the number of billboards that were operational and misrepresented the value of assets contributed to Reserve Guaranty. The complaint also alleged that the investment contracts were sold through a network of independent sales agents. The complaint further alleged that Bradshaw was one of the top three sales agents for MBA and that by himself he sold more than $5.3 million of the Mobile Billboard investments and through sales agents that he directed, another $16 million worth of investments were sold. The complaint further alleged that Bradshaw knew that MBA was using a portion of the purchase price investors paid for the billboards to make the first year of lease payments to investors even though that fact was not disclosed to investors. The complaint further alleges that Bradshaw operated as a broker-dealer.
A hearing will be scheduled before an administrative law judge to determine whether the allegations contained in the Order are true, to provide Bradshaw an opportunity to dispute these allegations, and to determine what, if any, remedial sanctions against Bradshaw are appropriate and in the public interest pursuant to the Exchange Act.
The Commission directed that an Administrative Law Judge shall issue an initial decision no later than 210 days from the date of service of the Order, pursuant to Rule 360(a)(2) of the Commission's Rules of Practice. (Rel. 34-58313; File No. 3-13116)
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In the Matter of Scott B. Hollenbeck
On August 6, the Commission issued an Order Instituting Administrative Proceedings Pursuant to Section 15(b) of the Securities Exchange Act of 1934 (Order) against Scott B. Hollenbeck (Hollenbeck). In the Order, the Division of Enforcement alleges that Hollenbeck was permanently enjoined from future violations of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 (Securities Act), Sections 10(b) and 15(a) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder, based on the entry, on July 10, 2008, of an order by the United States District Court for the Northern District of Georgia in the civil action entitled Securities and Exchange Commission v. Scott B. Hollenbeck, Timothy L. Bradshaw and Steven K. Gilley, Civil Action Number 1:05-CV-1272-WBH.
The Commission's complaint alleged that Mobile Billboards of America, Inc. (MBA) sold more than $60 million of the billboard frame investments. The investments consisted of mobile billboard frames that were purportedly mounted on the sides of trucks to hold advertising posters. Outdoor Media Industries (Outdoor Media), a division of International Payphone controlled by the promoters of MBA, leased the billboards back from investors for seven years for monthly payments equivalent to 13.49% annually. Reserve Guaranty, another entity controlled by the MBA promoters, purportedly operated as a sinking fund and issued investors certificates that purportedly guaranteed funding for MBA's commitment to buy back the billboards at the full purchase price at the end of the seven-year lease. The complaint alleged that the investment program operated as a Ponzi scheme because the collective business did not generate sufficient advertising revenue to make monthly lease payments to investors and, instead, relied on new investor money. The complaint further alleged that MBA's sales materials made false claims about the number of billboards that were operational and misrepresented the value of assets contributed to Reserve Guaranty. The complaint also alleged that the investment contracts were sold through a network of independent sales agents. The complaint also alleged that the investment contracts were sold through a network of independent sales agents. The complaint further alleged that Hollenbeck was one of the top three sales agents for MBA and that by himself he sold more than $11 million of the Mobile Billboard investments. The complaint further alleged that Hollenbeck provided a forged surety bond to investors. The surety bond falsely stated that the individual investor was insured against loss up to the value of the Mobile Billboards investment purchased by each investor. The complaint further alleges that Hollenbeck operated as a broker-dealer.
A hearing will be scheduled before an administrative law judge to determine whether the allegations contained in the Order are true, to provide Hollenbeck an opportunity to dispute these allegations, and to determine what, if any, remedial sanctions against Hollenbeck are appropriate and in the public interest pursuant to the Exchange Act.
The Commission directed that an Administrative Law Judge shall issue an initial decision no later than 210 days from the date of service of the Order, pursuant to Rule 360(a)(2) of the Commission's Rules of Practice. (Rel. 34-58316; File No. 3-13117)
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In the Matter of Peter In Cho
On August 6, the Commission issued an Order Instituting Administrative Proceedings Pursuant to Section 15(b) of the Securities Exchange Act of 1934 and Notice of Hearing (Order) against Peter In Cho (Cho).
In the Order, the Division of Enforcement alleges that on July 27, 2007, Cho pled guilty to 16 counts of wire fraud under 18 U.S.C. §§ 1343 and 1346 before the United States District Court for the Northern District of Illinois, in United States v. Cho, et al., Crim. Indictment No. 1:04-CR-166. The Division of Enforcement alleges that from 1991 to 1998, Cho worked for John Dawson & Associates, Inc. (JDAI), a broker-dealer registered with the Commission, as JDAI's Chief Executive Officer and as a registered representative. The Division of Enforcement alleges that the counts of the criminal indictment to which Respondent pled guilty alleged, inter alia, that Respondent devised, intended to devise, and participated in a scheme to defraud in which Respondent and others caused and directed: (1) fraudulent and fictitious stock and options trading in firm and customer accounts; (2) inventory "parking" in customer and firm accounts in order to conceal excessive or losing stock and options inventory positions; (3) inventory "kiting" between the "Average Price Account" and firm proprietary accounts in order to satisfy margin requirements and artificially inflate buying power in firm proprietary accounts; (4) fraudulent "trade allocations" by creating, assigning, and/or transferring profitable securities and options trades to certain firm, employee, and customer accounts, and losing trades to other accounts; and (5) the misappropriation and conversion of customer and firm funds.
The Division of Enforcement further alleges that on March 21, 2008, a judgment in the criminal case was entered against Cho. The Division of Enforcement alleges that Cho was sentenced to a term of imprisonment of 65 months, ordered to pay restitution in the amount of $6,336,236 and placed on 3 years probation following his release from prison.
A hearing will be scheduled before an administrative law judge to determine whether the allegations contained in the Order are true, to provide the Respondent an opportunity to dispute these allegations, and to determine what, if any, remedial sanctions are appropriate and in the public interest.
The Order requires the Administrative Law Judge to issue an initial decision no later than 210 days from the date of service of this Order, pursuant to Rule 360(a)(2) of the Commission's Rules of Practice. (Rel. 34-58317; File No. 3-13118)
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In the Matter of Simon Chong
On August 6, 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 Simon Chong (Chong).
The Order finds that on July 27, 2007, Chong pled guilty to six counts of wire fraud under 18 U.S.C. §§ 1343 and 1346 before the United States District Court for the Northern District of Illinois, in United States v. Cho, et al., Crim. Indictment No. 1:04-CR-166. The Order finds that Chong was employed from 1991 to 1998 at John Dawson & Associates, Inc. (JDAI), a broker-dealer registered with the Commission, as JDAI's Chief Operating Officer and as a registered representative. The Order finds that the counts of the criminal indictment to which Chong pled guilty alleged, inter alia, that Chong, for the purpose of executing a scheme to defraud, reallocated favorable trades from certain JDAI proprietary firm accounts to his father's account at JDAI. The Order finds that the criminal superseding information alleged, inter alia, that these after-the-fact trade allocations either profited Chong's father's account or served to avoid losses in his account.
The Order also finds that on March 21, 2008, a judgment in the criminal case was entered against Chong. The Order finds that Chong was sentenced to a term of imprisonment of 48 months, ordered to pay restitution in the amount of $2,929,701 and placed on 3 years probation following his release from prison.
Based on the above, the Order bars Chong from association with any broker or dealer. Chong consented to the issuance of the Order. (Rel. 34-58318; File No. 3-13119)
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In the Matter of Marc Willis
On August 6, the Commission issued an Order Instituting Administrative Proceedings Pursuant to Section 15(b) of the Securities Exchange Act of 1934 and Notice of Hearing (Order) against Marc Willis (Willis).
In the Order, the Division of Enforcement alleges that on Aug. 10, 2007, Willis pled guilty to one count of wire fraud under 18 U.S.C. §§ 1343 and 1346 before the United States District Court for the Northern District of Illinois, in United States v. Cho, et al., Crim. Indictment No. 1:04-CR-166. The Division of Enforcement alleges that Willis was employed from 1993 to 1998 at John Dawson & Associates, Inc. (JDAI), a broker-dealer registered with the Commission, as JDAI's Chief Compliance Officer. The count of the criminal superseding information to which Willis pled guilty alleged, inter alia, that Willis, for the purpose of executing a scheme to defraud, consented to the favorable reallocation of trades from certain JDAI accounts to accounts in the name of his mother and brother at JDAI. The Division of Enforcement also alleges that the count of the superseding information to which Willis pled guilty alleged that Willis knew that these favorable trades were not initiated or authorized by his mother or brother and that these trades were allocated after-the-fact to his mother's and brother's trading accounts as a means of transferring funds to them at the expense of the firm and/or other customers to which the profits should have legitimately been allocated.
The Division of Enforcement further alleges that on March 27, 2008, a judgment in the criminal case was entered against Willis. The Division of Enforcement alleges that Willis was sentenced to imprisonment of 10 days, ordered to pay $7,758 in restitution, ordered to perform 1,000 hours of community service and placed on 4 years probation.
A hearing will be scheduled before an administrative law judge to determine whether the allegations contained in the Order are true, to provide the Respondent an opportunity to dispute these allegations, and to determine what, if any, remedial sanctions are appropriate and in the public interest.
The Order requires the Administrative Law Judge to issue an initial decision no later than 210 days from the date of service of this Order, pursuant to Rule 360(a)(2) of the Commission's Rules of Practice. (Rel. 34-58319; File No. 3-13120)
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Prudential Financial, Inc. Settles Financial Reporting and Related Charges by SEC for Improperly Reporting Over $200 Million in Income as a Result of Purported Reinsurance Contracts
On August 6, the Commission filed a civil injunctive action in United States District Court for the District of New Jersey charging Prudential Financial, Inc., a leading provider of financial services, with violating the financial reporting, books-and-records, and internal control provisions of the Securities Exchange Act of 1934. Prudential has agreed to settle the case, without admitting or denying the Commission's allegations, by consenting to the entry of a permanent injunction.
The Commission's complaint, filed in federal court in Newark, alleges that from December 1997 through December 2002, Prudential's former property and casualty subsidiaries known as the Prupac companies (Prupac), entered into a series of so-called finite reinsurance contracts with General Reinsurance Corporation (Gen Re) that had no economic substance and no purpose other than to build up and then draw down on an off-balance sheet asset, or "bank," that Gen Re held for Prupac. According to the complaint, the contracts were shams, written to look like they met the requirements to qualify for reinsurance accounting; in fact, they were subject to an oral side agreement that effectively eliminated any risk to either party and made such accounting improper. Prupac built up the bank in 1997, 1998 and 1999 and then, in 2000, 2001 and 2002, drew down on the bank and improperly recorded the repayments as income. In 2001, Prudential became a public company and the inaccurate financial statements became a part of its annual, quarterly and current filings thereafter.
The complaint alleges that the improper accounting practices began in 1997, when Prudential and Gen Re negotiated a riskless reinsurance contract under which Prupac paid Gen Re $50 million. The contract was entered into in the final days of the coverage period, but backdated to appear as if it had been agreed to before the coverage period began. The understanding between the parties was that Gen Re would credit Prupac with interest at the one-year Treasury bill rate and also collect a fee on the money it held. It was further agreed that the relationship would be riskless: If Gen Re lost money in the early years of the relationship, when its exposure on the purported reinsurance contracts was greater than the amount in the bank, Prupac would make Gen Re whole. The parties kept track of where they stood in the relationship by means of a ledger, called an "Experience Account Balance," which showed payments made into the bank, less fees, plus interest, and less payments out.
From 1997 through 2000, Prupac built up the bank, depositing approximately $190 million of the $200 million it would eventually deposit with Gen Re in the form of premiums on reinsurance policies for which no reinsurance recoveries were triggered. In 2000, 2001, and 2002, Prupac drew down on the bank, structuring the purported reinsurance contracts to ensure it recovered virtually to the penny every payment it had made, plus interest, less Gen Re's fee. As a result of these recoveries, Prudential improperly reported additional pre-tax income of $97 million, $80 million and $41 million in 2000, 2001 and 2002, respectively.
The complaint alleges that the improper accounting practices within Prudential's Property and Casualty Insurance division resulted in an overstatement of Prudential's consolidated pre-tax income for 2000, 2001 and 2002 by $57 million or 9%, $75 million or 25%, and by $38 million or 146%, respectively. As a result of these improper accounting practices, Prudential filed annual, quarterly and current reports with the Commission that included financial statements that were inaccurate and misleading and violated the financial reporting, books-and-records, and internal controls provisions of the Exchange Act. Specifically, the complaint alleges that Prudential violated Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act, and Rules 12b-20, 13a-1, 13a-11 and 13a-13 thereunder.
Without admitting or denying the Commission's allegations, Prudential has agreed to settle the charges by consenting to a permanent injunction against further violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act, and Rules 12b-20, 13a-1, 13a-11 and 13a-13 thereunder. [SEC v. Prudential Financial, Inc., 08 Civ. 3916 (PGS) (D.N.J.)] (LR-20670; AAE Rel. 2860)
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SEC Charges Former ABB Project Manager for Falsifying Company's Books and Records
The Commission announced today that it filed a settled civil action in the United States District Court for the District of Columbia against Ali Hozhabri, a former project manager for a subsidiary of ABB Ltd., charging him with violations of the books and records provisions of the Securities Exchange Act of 1934 (Exchange Act). ABB is a Swiss corporation, and its American Depository Receipts are registered with the Commission and trade on the New York Stock Exchange.
As alleged in the complaint, Hozhabri was a project manager for ABB Network Management (ABB NM), a division of a U.S. based ABB subsidiary, which provides products and services for managing power generation and transmission networks. The Commission alleges that, from 2002 through 2004, Hozhabri fraudulently submitted approximately $468,714 in cash and check disbursement requests to ABB NM for purported business expenses associated with projects in Brazil, Paraguay, and the United Arab Emirates. As alleged in the complaint, these purported expenses were phony, and inaccurately recorded as legitimate business expenses in ABB's books and records. The Commission further alleges that the funds disbursed by ABB NM as a result of these requests were not used to pay any business expenses, but rather were embezzled by Hozhabri and the former General Manager of ABB NM. According to the complaint, Hozhabri personally kept $234,357 of the embezzled funds.
The Commission alleges that Hozhabri violated Section 13(b)(5) of the Exchange Act, and Rule 13b2-1 thereunder, and aided and abetted violations of Section 13(b)(2)(A) of the Exchange Act. Without admitting or denying the allegations in the complaint, Hozhabri consented to the entry of a final judgment that permanently enjoins him from future violations of these provisions, and orders him to disgorge his ill-gotten gains of $234,357, which will be deemed satisfied by his payment of that amount in a pending criminal case by the U.S. Department of Justice. In that case, United States v. Hozhabri, Criminal Docket No. H-07-452(s) (SDTx), Hozhabri has pled guilty to conspiracy to commit wire fraud and is awaiting sentencing. [SEC v. Ali Hozhabri, Civil Action No. 08 CV 1359 (D.D.C.)] (LR-20671)
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INVESTMENT COMPANY ACT RELEASES
DNP Select Income Fund Inc., et al.
A notice has been issued giving interested persons until Aug. 25, 2008, to request a hearing on an application filed by DNP Select Income Fund Inc. (Fund) and Duff and Phelps Investment Management Co. under Section 6(c) of the Investment Company Act for an exemption from Section 19(b) of the Act, and Rule 19b-1 under the Act. The order would permit certain registered closed-end management investment companies to make periodic distributions of long-term capital gains (i) with respect to their common stock as part of a managed distribution plan as frequently as twelve times each, and (ii) with respect to their preferred stock as frequently as required by the terms of such preferred stock. (Rel. IC-28348 – July 31)
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ING Clarion Real Estate Income Fund, et al.
An order has been issued on an application filed by ING Clarion Real Estate Income Fund, et al. under Section 6(c) of the Investment Company Act for an exemption from Section 19(b) of the Act and Rule 19b-1 under the Act. The order permits certain registered closed-end management investment companies to make periodic distributions of long-term capital gains (i) with respect to their common stock as part of a managed distribution plan as frequently as twelve times each year, and (ii) with respect to their preferred stock as frequently as required by the terms of such preferred stock. (Rel. IC-28352 - August 5)
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SELF-REGULATORY ORGANIZATIONS
Immediate Effectiveness of Proposed Rule Changes
A proposed rule change filed by NYSE Arca (SR-NYSEArca-2008-80) eliminating certain obsolete rules 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 August 4. (Rel. 34-58266)
A proposed rule change filed by the NASDAQ Stock Market to modify Rule 7050 governing pricing for Nasdaq members using the NASDAQ Options Market ("NOM") (SR-NASDAQ-2008-066) 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 August 4. (Rel. 34-58279)
A proposed rule change filed by the NASDAQ Stock Market (SR-NASDAQ-2008-067) regarding letters of guarantee for options participants 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 August 4. (Rel. 34-58282)
A proposed rule change (SR-ISE-2008-62) filed by the International Securities Exchange to amend Exchange rules related to the imposition of fines for minor rule violations 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 August 4. (Rel. 34-58289)
A proposed rule change filed by NYSE Arca amending its Schedule of Fees and Charges for Exchange Services in order to revise certain transaction fees (SR-NYSEArca-2008-75) 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 August 11. (Rel. 34-58295)
A proposed rule change (SR-NYSE-2008-62) filed by the New York Stock Exchange to eliminate Sections 305 and 308 and the shareholder rights provisions of Section 314 of the Listed Company Manual, 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 August 11. (Rel. 34-58303)
NYSE Arca filed a proposed rule change (SR-NYSEArca-2008-82) under Section 19(b)(1) of the Securities Exchange Act of 1934 in connection with the proposed acquisition of The Amex Membership Corporation. Publication is expected in the Federal Register during the week of August 11. (Rel. 34-58306)
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Approval of Proposed Rule Changes
The Commission approved a proposed rule change (SR-CBOE-2008-59) filed by the Chicago Board Options Exchange to amend CBOE Rule 8.7 related to the obligations of market-makers. Publication is expected in the Federal Register during the week of August 4. (Rel. 34-58281)
The Commission approved a proposed rule change (SR-CBOE-2008-30) submitted pursuant to Rule 19b-4 under the Securities Exchange Act of 1934 by the Chicago Board Options Exchange relating to the Hybrid Opening System. Publication is expected in the Federal Register during the week of August 4. (Rel. 34-58296)
The Commission approved a proposed rule change (SR-NASDAQ-2008-055) submitted under Rule 19b-4 of the Securities Exchange Act of 1934 by the NASDAQ Stock Market regarding fees for orders routed via the Options Intermarket Linkage. Publication is expected in the Federal Register during the week of August 11. (Rel. 34-58298)
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Proposed Rule Changes
Pursuant to Rule 19b-4 under the Securities Exchange Act of 1934, the Financial Industry Regulatory Authority has filed a proposed rule change (SR-FINRA-2008-040) to eliminate of the requirement to report yield to TRACE and for FINRA to calculate yield that will be disseminated by TRACE. Publication is expected in the Federal Register during the week of August 4. (Rel. 34-58283)
The New York Stock Exchange filed a proposed rule change (SR-NYSE-2008-70) amending rules governing membership in order to waive-in members in good standing of the American Stock Exchange as members and member organizations of the Exchange. Publication is expected in the Federal Register during the week of August 11. (Rel. 34-58290)
The Financial Industry Regulatory Authority filed a proposed rule change (SR-FINRA-2008-043), pursuant to Rule 19b-4 under the Securities Exchange Act of 1934, to establish a membership waive-in process and fee waiver for certain NYSE Alternext US LLC member organizations. Publication is expected in the Federal Register during the week of August 11. (Rel. 34-58291)
The Depository Trust Company filed a proposed rule change (SR-DTC-2008-07) pursuant to Section 19(b)(1) of the Act that will enhance its Profile Modification System in order to allow a "move all" instruction and to allow a second taxpayer identification number or social security number to be used to verify instructions the proposed rule change would also impose new participant fees to reimburse transfer agents for the cost of implementing and maintaining these Profile enhancements. Publication is expected in the Federal Register during the week of August 11. (Rel. 34-58292)
NYSE Arca has filed a proposed rule change (SR-NYSEArca-2008-78) to waive annual fees for securities transferring to NYSE Arca from NYSE Alternext US. Publication is expected in the Federal Register during the week of August 11. (Rel. 34-58297)
The New York Stock Exchange filed a proposed rule change (SR-NYSE-2008-68) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 to enable the Exchange to determine that a company meets the Exchange's market value requirements by relying on a third-party valuation of the company. Publication is expected in the Federal Register during the week of August 11. (Rel. 34-58299)
The New York Stock Exchange filed a proposed rule change (SR-NYSE-2008-56) to amend Section 902.09 of the Listed Company Manual to establish fees for securities listed under Sections 703.21 and 703.22 of the Listed Company Manual and traded on NYSE Bonds and to waive fees for structured products transferred from the Amex to the NYSE. Publication is expected in the Federal Register during the week of August 11. (Rel. 34-58301)
The Financial Industry Regulatory Authority filed a proposed rule change (SR-FINRA-2008-039) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 and Rule 19b-4 thereunder that proposes changes to FINRA procedures relating to Regulation M by proposing new FINRA Rules 5190 and 6470, changes to NASD Rules 4200A, 4619A, and 6540, and to delete Incorporated NYSE Rule 392. FINRA also proposes to adopt current NASD Rule 2710 (Corporate Financing Rule - Underwriter Terms and Arrangements) except for paragraphs (b)(10) and (11) as FINRA Rule 5110 in the Consolidated FINRA Rulebook with technical changes to the rule text in the proposal. Publication is expected in the Federal Register during the week of August 11. (Rel. 34-58302)
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http://www.sec.gov/news/digest/2008/dig080608.htm
Issue 2008-152
COMMISSION ANNOUNCEMENTS
Closed Meeting - August 5, 2008 - 5:00 p.m.
The Commission held a closed meeting on August 5, 2008, at 5:00 p.m. The subject matter of the closed meeting was: institution and settlement of injunctive actions; and other matters related 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.
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ENFORCEMENT PROCEEDINGS
In the Matter of Kent D. Nelson
On August 1, 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 and Notice of Hearing (Order) against Kent D. Nelson (Nelson).
In the Order, the Division of Enforcement (Division) alleges that on Sept. 14, 2005, Nelson, a registered representative and investment adviser in San Diego, California, pleaded guilty to one count of mail fraud in violation of Title 18 United States Code, Section 1341, in the criminal action entitled United States v. Kent Nelson, Criminal Information No. 05-2021 JP, in the United States District Court for the District of New Mexico. The information to which Nelson pleaded guilty alleged that, from December 1999 through March 2005, Nelson paid substantial amounts of money to corruptly influence the Treasurer of the State of New Mexico to award securities work to Nelson, and used the United States mail to pay kickbacks to the Treasurer of the State of New Mexico. The Division further alleges that on May 8, 2007 Nelson pleaded guilty and was convicted on state racketeering charges in the State of New Mexico based on the same facts, and that on Jan. 3, 2006, the California Corporations Commissioner issued an order barring Nelson from affiliation with an investment adviser.
A hearing will be scheduled before an administrative law judge to determine whether the allegations contained in the Order are true, to provide Nelson an opportunity to respond to these allegations, and to determine what sanctions, if any, are appropriate and in the public interest. The Order directs the administrative law judge to issue an initial decision within 210 days from the date of service of the Order. (Rel. IA-2765; 34-58287; File No. 3-13112)
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In the Matter of Ernst & Young LLP, John F. Ferraro, CPA, and Michael G. Lutze, CPA
On August 5, the Commission issued an Order Instituting Public Administrative and Cease-and-Desist Proceedings Pursuant to Sections 4C and 21C of the Securities Exchange Act of 1934 and Rule 102(e) of the Commission's Rules of Practice, Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order against Ernst & Young LLP, John F. Ferraro, CPA and Michael G. Lutze, CPA. The Order finds that E&Y had a direct business relationship with an outside director of three of its audit clients during a 19-month period that impaired its independence as those clients' auditor. The Order finds that Respondent Ferraro caused E&Y to enter into the independence-impairing relationship despite knowing that the director was then serving on the boards of two companies that Ferraro knew to be audit clients of the firm. In addition, the Order finds that Respondent Lutze, in responding to a question from one of the audit clients concerning E&Y's independence, failed to fully inform the client about an email he had received concerning the business relationship. The Order finds, as a result of this conduct, that E&Y, Ferraro and Lutze each engaged in improper professional conduct pursuant to Exchange Act Section 4C and Rule 102(e) of the Commission's Rules of Practice; that E&Y violated (and that Ferraro was a cause of E&Y's violation of) Rule 2-02(b) of Regulation S-X; and that E&Y caused all three audit clients to violate (and that Ferraro was a cause of two of those clients' violations of) Exchange Act Sections 13(a) and 14(a), and Exchange Act Rules 13a-1 and 14a-3.
Based on the above, the Order censures E&Y, Ferraro and Lutze; requires E&Y to disgorge $2,381,965 in audit fees plus $537,022.79 in prejudgment interest; requires Ferraro to cease and desist from causing any violations and any future violations of Rule 2-02 of Regulation S-X, and from causing any violations and any future violations of Sections 13(a) and 14(a) of the Securities Exchange Act of 1934, and Rules 13a-1 and 14a-3 thereunder; and denies Lutze the privilege of appearing or practicing before the Commission as an accountant, but allows him to request reinstatement after one year. (Rel. 34-58309; AAE Rel. 2858; File No. 3-13114)
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In the Matter of Mark C. Thompson
On August 6, the Commission issued an Order Instituting Cease and-Desist Proceedings, Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order against Mark C. Thompson. The Order finds that, while serving as an outside director of three different public companies, Thompson had a direct business relationship with those companies' outside auditor. The Order further finds, among other things, that Thompson failed to fully disclose the business relationship to the three companies on his Director and Officer questionnaires and in the context of board votes concerning proxy solicitations. The Order finds that, as a result of his conduct, Thompson was a cause of two of the companies' violations of Exchange Act Sections 13(a) and 14(a) and Rules 13a-1 and 14a-3 thereunder, and was a cause of all three companies' violations of Exchange Act Section 14(a) and Rule 14a-9 thereunder.
Based on the above, the Order requires Thompson to cease and desist from causing any violations and any future violations of Sections 13(a) and 14(a) of the Securities Exchange Act of 1934, and Rules 13a-1, 14a-3 and 14a-9 thereunder; and requires Thompson to disgorge $100,662.33 in director compensation plus $23,254.94 in prejudgment interest. (Rel. 34-58310; AAE Rel. 2859; File No. 3-13115)
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In the Matter of Timothy L. Bradshaw
On August 6, the Commission issued an Order Instituting Administrative Proceedings Pursuant to Section 15(b) of the Securities Exchange Act of 1934 and Notice of Hearing (Order) against Timothy L. Bradshaw (Bradshaw). In the Order, the Division of Enforcement alleges that Bradshaw was permanently enjoined from future violations of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 (Securities Act), Sections 10(b) and 15(a) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder, based on the entry, on July 10, 2008, of an order by the United States District Court for the Northern District of Georgia in the civil action entitled Securities and Exchange Commission v. Scott B. Hollenbeck, Timothy L. Bradshaw and Steven K. Gilley, Civil Action Number 1:05-CV-1272-WBH.
The Commission's complaint alleged that Mobile Billboards of America, Inc. (MBA) sold more than $60 million of the billboard frame investments. The investments consisted of mobile billboard frames that were purportedly mounted on the sides of trucks to hold advertising posters. Outdoor Media Industries (Outdoor Media), a division of International Payphone controlled by the promoters of MBA, leased the billboards back from investors for seven years for monthly payments equivalent to 13.49% annually. Reserve Guaranty, another entity controlled by the MBA promoters, purportedly operated as a sinking fund and issued investors certificates that purportedly guaranteed funding for MBA's commitment to buy back the billboards at the full purchase price at the end of the seven-year lease. The complaint alleged that the investment program operated as a Ponzi scheme because the collective business did not generate sufficient advertising revenue to make monthly lease payments to investors and, instead, relied on new investor money. The complaint further alleged that MBA's sales materials made false claims about the number of billboards that were operational and misrepresented the value of assets contributed to Reserve Guaranty. The complaint also alleged that the investment contracts were sold through a network of independent sales agents. The complaint further alleged that Bradshaw was one of the top three sales agents for MBA and that by himself he sold more than $5.3 million of the Mobile Billboard investments and through sales agents that he directed, another $16 million worth of investments were sold. The complaint further alleged that Bradshaw knew that MBA was using a portion of the purchase price investors paid for the billboards to make the first year of lease payments to investors even though that fact was not disclosed to investors. The complaint further alleges that Bradshaw operated as a broker-dealer.
A hearing will be scheduled before an administrative law judge to determine whether the allegations contained in the Order are true, to provide Bradshaw an opportunity to dispute these allegations, and to determine what, if any, remedial sanctions against Bradshaw are appropriate and in the public interest pursuant to the Exchange Act.
The Commission directed that an Administrative Law Judge shall issue an initial decision no later than 210 days from the date of service of the Order, pursuant to Rule 360(a)(2) of the Commission's Rules of Practice. (Rel. 34-58313; File No. 3-13116)
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In the Matter of Scott B. Hollenbeck
On August 6, the Commission issued an Order Instituting Administrative Proceedings Pursuant to Section 15(b) of the Securities Exchange Act of 1934 (Order) against Scott B. Hollenbeck (Hollenbeck). In the Order, the Division of Enforcement alleges that Hollenbeck was permanently enjoined from future violations of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 (Securities Act), Sections 10(b) and 15(a) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder, based on the entry, on July 10, 2008, of an order by the United States District Court for the Northern District of Georgia in the civil action entitled Securities and Exchange Commission v. Scott B. Hollenbeck, Timothy L. Bradshaw and Steven K. Gilley, Civil Action Number 1:05-CV-1272-WBH.
The Commission's complaint alleged that Mobile Billboards of America, Inc. (MBA) sold more than $60 million of the billboard frame investments. The investments consisted of mobile billboard frames that were purportedly mounted on the sides of trucks to hold advertising posters. Outdoor Media Industries (Outdoor Media), a division of International Payphone controlled by the promoters of MBA, leased the billboards back from investors for seven years for monthly payments equivalent to 13.49% annually. Reserve Guaranty, another entity controlled by the MBA promoters, purportedly operated as a sinking fund and issued investors certificates that purportedly guaranteed funding for MBA's commitment to buy back the billboards at the full purchase price at the end of the seven-year lease. The complaint alleged that the investment program operated as a Ponzi scheme because the collective business did not generate sufficient advertising revenue to make monthly lease payments to investors and, instead, relied on new investor money. The complaint further alleged that MBA's sales materials made false claims about the number of billboards that were operational and misrepresented the value of assets contributed to Reserve Guaranty. The complaint also alleged that the investment contracts were sold through a network of independent sales agents. The complaint also alleged that the investment contracts were sold through a network of independent sales agents. The complaint further alleged that Hollenbeck was one of the top three sales agents for MBA and that by himself he sold more than $11 million of the Mobile Billboard investments. The complaint further alleged that Hollenbeck provided a forged surety bond to investors. The surety bond falsely stated that the individual investor was insured against loss up to the value of the Mobile Billboards investment purchased by each investor. The complaint further alleges that Hollenbeck operated as a broker-dealer.
A hearing will be scheduled before an administrative law judge to determine whether the allegations contained in the Order are true, to provide Hollenbeck an opportunity to dispute these allegations, and to determine what, if any, remedial sanctions against Hollenbeck are appropriate and in the public interest pursuant to the Exchange Act.
The Commission directed that an Administrative Law Judge shall issue an initial decision no later than 210 days from the date of service of the Order, pursuant to Rule 360(a)(2) of the Commission's Rules of Practice. (Rel. 34-58316; File No. 3-13117)
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In the Matter of Peter In Cho
On August 6, the Commission issued an Order Instituting Administrative Proceedings Pursuant to Section 15(b) of the Securities Exchange Act of 1934 and Notice of Hearing (Order) against Peter In Cho (Cho).
In the Order, the Division of Enforcement alleges that on July 27, 2007, Cho pled guilty to 16 counts of wire fraud under 18 U.S.C. §§ 1343 and 1346 before the United States District Court for the Northern District of Illinois, in United States v. Cho, et al., Crim. Indictment No. 1:04-CR-166. The Division of Enforcement alleges that from 1991 to 1998, Cho worked for John Dawson & Associates, Inc. (JDAI), a broker-dealer registered with the Commission, as JDAI's Chief Executive Officer and as a registered representative. The Division of Enforcement alleges that the counts of the criminal indictment to which Respondent pled guilty alleged, inter alia, that Respondent devised, intended to devise, and participated in a scheme to defraud in which Respondent and others caused and directed: (1) fraudulent and fictitious stock and options trading in firm and customer accounts; (2) inventory "parking" in customer and firm accounts in order to conceal excessive or losing stock and options inventory positions; (3) inventory "kiting" between the "Average Price Account" and firm proprietary accounts in order to satisfy margin requirements and artificially inflate buying power in firm proprietary accounts; (4) fraudulent "trade allocations" by creating, assigning, and/or transferring profitable securities and options trades to certain firm, employee, and customer accounts, and losing trades to other accounts; and (5) the misappropriation and conversion of customer and firm funds.
The Division of Enforcement further alleges that on March 21, 2008, a judgment in the criminal case was entered against Cho. The Division of Enforcement alleges that Cho was sentenced to a term of imprisonment of 65 months, ordered to pay restitution in the amount of $6,336,236 and placed on 3 years probation following his release from prison.
A hearing will be scheduled before an administrative law judge to determine whether the allegations contained in the Order are true, to provide the Respondent an opportunity to dispute these allegations, and to determine what, if any, remedial sanctions are appropriate and in the public interest.
The Order requires the Administrative Law Judge to issue an initial decision no later than 210 days from the date of service of this Order, pursuant to Rule 360(a)(2) of the Commission's Rules of Practice. (Rel. 34-58317; File No. 3-13118)
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In the Matter of Simon Chong
On August 6, 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 Simon Chong (Chong).
The Order finds that on July 27, 2007, Chong pled guilty to six counts of wire fraud under 18 U.S.C. §§ 1343 and 1346 before the United States District Court for the Northern District of Illinois, in United States v. Cho, et al., Crim. Indictment No. 1:04-CR-166. The Order finds that Chong was employed from 1991 to 1998 at John Dawson & Associates, Inc. (JDAI), a broker-dealer registered with the Commission, as JDAI's Chief Operating Officer and as a registered representative. The Order finds that the counts of the criminal indictment to which Chong pled guilty alleged, inter alia, that Chong, for the purpose of executing a scheme to defraud, reallocated favorable trades from certain JDAI proprietary firm accounts to his father's account at JDAI. The Order finds that the criminal superseding information alleged, inter alia, that these after-the-fact trade allocations either profited Chong's father's account or served to avoid losses in his account.
The Order also finds that on March 21, 2008, a judgment in the criminal case was entered against Chong. The Order finds that Chong was sentenced to a term of imprisonment of 48 months, ordered to pay restitution in the amount of $2,929,701 and placed on 3 years probation following his release from prison.
Based on the above, the Order bars Chong from association with any broker or dealer. Chong consented to the issuance of the Order. (Rel. 34-58318; File No. 3-13119)
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In the Matter of Marc Willis
On August 6, the Commission issued an Order Instituting Administrative Proceedings Pursuant to Section 15(b) of the Securities Exchange Act of 1934 and Notice of Hearing (Order) against Marc Willis (Willis).
In the Order, the Division of Enforcement alleges that on Aug. 10, 2007, Willis pled guilty to one count of wire fraud under 18 U.S.C. §§ 1343 and 1346 before the United States District Court for the Northern District of Illinois, in United States v. Cho, et al., Crim. Indictment No. 1:04-CR-166. The Division of Enforcement alleges that Willis was employed from 1993 to 1998 at John Dawson & Associates, Inc. (JDAI), a broker-dealer registered with the Commission, as JDAI's Chief Compliance Officer. The count of the criminal superseding information to which Willis pled guilty alleged, inter alia, that Willis, for the purpose of executing a scheme to defraud, consented to the favorable reallocation of trades from certain JDAI accounts to accounts in the name of his mother and brother at JDAI. The Division of Enforcement also alleges that the count of the superseding information to which Willis pled guilty alleged that Willis knew that these favorable trades were not initiated or authorized by his mother or brother and that these trades were allocated after-the-fact to his mother's and brother's trading accounts as a means of transferring funds to them at the expense of the firm and/or other customers to which the profits should have legitimately been allocated.
The Division of Enforcement further alleges that on March 27, 2008, a judgment in the criminal case was entered against Willis. The Division of Enforcement alleges that Willis was sentenced to imprisonment of 10 days, ordered to pay $7,758 in restitution, ordered to perform 1,000 hours of community service and placed on 4 years probation.
A hearing will be scheduled before an administrative law judge to determine whether the allegations contained in the Order are true, to provide the Respondent an opportunity to dispute these allegations, and to determine what, if any, remedial sanctions are appropriate and in the public interest.
The Order requires the Administrative Law Judge to issue an initial decision no later than 210 days from the date of service of this Order, pursuant to Rule 360(a)(2) of the Commission's Rules of Practice. (Rel. 34-58319; File No. 3-13120)
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Prudential Financial, Inc. Settles Financial Reporting and Related Charges by SEC for Improperly Reporting Over $200 Million in Income as a Result of Purported Reinsurance Contracts
On August 6, the Commission filed a civil injunctive action in United States District Court for the District of New Jersey charging Prudential Financial, Inc., a leading provider of financial services, with violating the financial reporting, books-and-records, and internal control provisions of the Securities Exchange Act of 1934. Prudential has agreed to settle the case, without admitting or denying the Commission's allegations, by consenting to the entry of a permanent injunction.
The Commission's complaint, filed in federal court in Newark, alleges that from December 1997 through December 2002, Prudential's former property and casualty subsidiaries known as the Prupac companies (Prupac), entered into a series of so-called finite reinsurance contracts with General Reinsurance Corporation (Gen Re) that had no economic substance and no purpose other than to build up and then draw down on an off-balance sheet asset, or "bank," that Gen Re held for Prupac. According to the complaint, the contracts were shams, written to look like they met the requirements to qualify for reinsurance accounting; in fact, they were subject to an oral side agreement that effectively eliminated any risk to either party and made such accounting improper. Prupac built up the bank in 1997, 1998 and 1999 and then, in 2000, 2001 and 2002, drew down on the bank and improperly recorded the repayments as income. In 2001, Prudential became a public company and the inaccurate financial statements became a part of its annual, quarterly and current filings thereafter.
The complaint alleges that the improper accounting practices began in 1997, when Prudential and Gen Re negotiated a riskless reinsurance contract under which Prupac paid Gen Re $50 million. The contract was entered into in the final days of the coverage period, but backdated to appear as if it had been agreed to before the coverage period began. The understanding between the parties was that Gen Re would credit Prupac with interest at the one-year Treasury bill rate and also collect a fee on the money it held. It was further agreed that the relationship would be riskless: If Gen Re lost money in the early years of the relationship, when its exposure on the purported reinsurance contracts was greater than the amount in the bank, Prupac would make Gen Re whole. The parties kept track of where they stood in the relationship by means of a ledger, called an "Experience Account Balance," which showed payments made into the bank, less fees, plus interest, and less payments out.
From 1997 through 2000, Prupac built up the bank, depositing approximately $190 million of the $200 million it would eventually deposit with Gen Re in the form of premiums on reinsurance policies for which no reinsurance recoveries were triggered. In 2000, 2001, and 2002, Prupac drew down on the bank, structuring the purported reinsurance contracts to ensure it recovered virtually to the penny every payment it had made, plus interest, less Gen Re's fee. As a result of these recoveries, Prudential improperly reported additional pre-tax income of $97 million, $80 million and $41 million in 2000, 2001 and 2002, respectively.
The complaint alleges that the improper accounting practices within Prudential's Property and Casualty Insurance division resulted in an overstatement of Prudential's consolidated pre-tax income for 2000, 2001 and 2002 by $57 million or 9%, $75 million or 25%, and by $38 million or 146%, respectively. As a result of these improper accounting practices, Prudential filed annual, quarterly and current reports with the Commission that included financial statements that were inaccurate and misleading and violated the financial reporting, books-and-records, and internal controls provisions of the Exchange Act. Specifically, the complaint alleges that Prudential violated Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act, and Rules 12b-20, 13a-1, 13a-11 and 13a-13 thereunder.
Without admitting or denying the Commission's allegations, Prudential has agreed to settle the charges by consenting to a permanent injunction against further violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act, and Rules 12b-20, 13a-1, 13a-11 and 13a-13 thereunder. [SEC v. Prudential Financial, Inc., 08 Civ. 3916 (PGS) (D.N.J.)] (LR-20670; AAE Rel. 2860)
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SEC Charges Former ABB Project Manager for Falsifying Company's Books and Records
The Commission announced today that it filed a settled civil action in the United States District Court for the District of Columbia against Ali Hozhabri, a former project manager for a subsidiary of ABB Ltd., charging him with violations of the books and records provisions of the Securities Exchange Act of 1934 (Exchange Act). ABB is a Swiss corporation, and its American Depository Receipts are registered with the Commission and trade on the New York Stock Exchange.
As alleged in the complaint, Hozhabri was a project manager for ABB Network Management (ABB NM), a division of a U.S. based ABB subsidiary, which provides products and services for managing power generation and transmission networks. The Commission alleges that, from 2002 through 2004, Hozhabri fraudulently submitted approximately $468,714 in cash and check disbursement requests to ABB NM for purported business expenses associated with projects in Brazil, Paraguay, and the United Arab Emirates. As alleged in the complaint, these purported expenses were phony, and inaccurately recorded as legitimate business expenses in ABB's books and records. The Commission further alleges that the funds disbursed by ABB NM as a result of these requests were not used to pay any business expenses, but rather were embezzled by Hozhabri and the former General Manager of ABB NM. According to the complaint, Hozhabri personally kept $234,357 of the embezzled funds.
The Commission alleges that Hozhabri violated Section 13(b)(5) of the Exchange Act, and Rule 13b2-1 thereunder, and aided and abetted violations of Section 13(b)(2)(A) of the Exchange Act. Without admitting or denying the allegations in the complaint, Hozhabri consented to the entry of a final judgment that permanently enjoins him from future violations of these provisions, and orders him to disgorge his ill-gotten gains of $234,357, which will be deemed satisfied by his payment of that amount in a pending criminal case by the U.S. Department of Justice. In that case, United States v. Hozhabri, Criminal Docket No. H-07-452(s) (SDTx), Hozhabri has pled guilty to conspiracy to commit wire fraud and is awaiting sentencing. [SEC v. Ali Hozhabri, Civil Action No. 08 CV 1359 (D.D.C.)] (LR-20671)
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INVESTMENT COMPANY ACT RELEASES
DNP Select Income Fund Inc., et al.
A notice has been issued giving interested persons until Aug. 25, 2008, to request a hearing on an application filed by DNP Select Income Fund Inc. (Fund) and Duff and Phelps Investment Management Co. under Section 6(c) of the Investment Company Act for an exemption from Section 19(b) of the Act, and Rule 19b-1 under the Act. The order would permit certain registered closed-end management investment companies to make periodic distributions of long-term capital gains (i) with respect to their common stock as part of a managed distribution plan as frequently as twelve times each, and (ii) with respect to their preferred stock as frequently as required by the terms of such preferred stock. (Rel. IC-28348 – July 31)
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ING Clarion Real Estate Income Fund, et al.
An order has been issued on an application filed by ING Clarion Real Estate Income Fund, et al. under Section 6(c) of the Investment Company Act for an exemption from Section 19(b) of the Act and Rule 19b-1 under the Act. The order permits certain registered closed-end management investment companies to make periodic distributions of long-term capital gains (i) with respect to their common stock as part of a managed distribution plan as frequently as twelve times each year, and (ii) with respect to their preferred stock as frequently as required by the terms of such preferred stock. (Rel. IC-28352 - August 5)
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SELF-REGULATORY ORGANIZATIONS
Immediate Effectiveness of Proposed Rule Changes
A proposed rule change filed by NYSE Arca (SR-NYSEArca-2008-80) eliminating certain obsolete rules 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 August 4. (Rel. 34-58266)
A proposed rule change filed by the NASDAQ Stock Market to modify Rule 7050 governing pricing for Nasdaq members using the NASDAQ Options Market ("NOM") (SR-NASDAQ-2008-066) 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 August 4. (Rel. 34-58279)
A proposed rule change filed by the NASDAQ Stock Market (SR-NASDAQ-2008-067) regarding letters of guarantee for options participants 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 August 4. (Rel. 34-58282)
A proposed rule change (SR-ISE-2008-62) filed by the International Securities Exchange to amend Exchange rules related to the imposition of fines for minor rule violations 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 August 4. (Rel. 34-58289)
A proposed rule change filed by NYSE Arca amending its Schedule of Fees and Charges for Exchange Services in order to revise certain transaction fees (SR-NYSEArca-2008-75) 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 August 11. (Rel. 34-58295)
A proposed rule change (SR-NYSE-2008-62) filed by the New York Stock Exchange to eliminate Sections 305 and 308 and the shareholder rights provisions of Section 314 of the Listed Company Manual, 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 August 11. (Rel. 34-58303)
NYSE Arca filed a proposed rule change (SR-NYSEArca-2008-82) under Section 19(b)(1) of the Securities Exchange Act of 1934 in connection with the proposed acquisition of The Amex Membership Corporation. Publication is expected in the Federal Register during the week of August 11. (Rel. 34-58306)
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Approval of Proposed Rule Changes
The Commission approved a proposed rule change (SR-CBOE-2008-59) filed by the Chicago Board Options Exchange to amend CBOE Rule 8.7 related to the obligations of market-makers. Publication is expected in the Federal Register during the week of August 4. (Rel. 34-58281)
The Commission approved a proposed rule change (SR-CBOE-2008-30) submitted pursuant to Rule 19b-4 under the Securities Exchange Act of 1934 by the Chicago Board Options Exchange relating to the Hybrid Opening System. Publication is expected in the Federal Register during the week of August 4. (Rel. 34-58296)
The Commission approved a proposed rule change (SR-NASDAQ-2008-055) submitted under Rule 19b-4 of the Securities Exchange Act of 1934 by the NASDAQ Stock Market regarding fees for orders routed via the Options Intermarket Linkage. Publication is expected in the Federal Register during the week of August 11. (Rel. 34-58298)
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Proposed Rule Changes
Pursuant to Rule 19b-4 under the Securities Exchange Act of 1934, the Financial Industry Regulatory Authority has filed a proposed rule change (SR-FINRA-2008-040) to eliminate of the requirement to report yield to TRACE and for FINRA to calculate yield that will be disseminated by TRACE. Publication is expected in the Federal Register during the week of August 4. (Rel. 34-58283)
The New York Stock Exchange filed a proposed rule change (SR-NYSE-2008-70) amending rules governing membership in order to waive-in members in good standing of the American Stock Exchange as members and member organizations of the Exchange. Publication is expected in the Federal Register during the week of August 11. (Rel. 34-58290)
The Financial Industry Regulatory Authority filed a proposed rule change (SR-FINRA-2008-043), pursuant to Rule 19b-4 under the Securities Exchange Act of 1934, to establish a membership waive-in process and fee waiver for certain NYSE Alternext US LLC member organizations. Publication is expected in the Federal Register during the week of August 11. (Rel. 34-58291)
The Depository Trust Company filed a proposed rule change (SR-DTC-2008-07) pursuant to Section 19(b)(1) of the Act that will enhance its Profile Modification System in order to allow a "move all" instruction and to allow a second taxpayer identification number or social security number to be used to verify instructions the proposed rule change would also impose new participant fees to reimburse transfer agents for the cost of implementing and maintaining these Profile enhancements. Publication is expected in the Federal Register during the week of August 11. (Rel. 34-58292)
NYSE Arca has filed a proposed rule change (SR-NYSEArca-2008-78) to waive annual fees for securities transferring to NYSE Arca from NYSE Alternext US. Publication is expected in the Federal Register during the week of August 11. (Rel. 34-58297)
The New York Stock Exchange filed a proposed rule change (SR-NYSE-2008-68) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 to enable the Exchange to determine that a company meets the Exchange's market value requirements by relying on a third-party valuation of the company. Publication is expected in the Federal Register during the week of August 11. (Rel. 34-58299)
The New York Stock Exchange filed a proposed rule change (SR-NYSE-2008-56) to amend Section 902.09 of the Listed Company Manual to establish fees for securities listed under Sections 703.21 and 703.22 of the Listed Company Manual and traded on NYSE Bonds and to waive fees for structured products transferred from the Amex to the NYSE. Publication is expected in the Federal Register during the week of August 11. (Rel. 34-58301)
The Financial Industry Regulatory Authority filed a proposed rule change (SR-FINRA-2008-039) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 and Rule 19b-4 thereunder that proposes changes to FINRA procedures relating to Regulation M by proposing new FINRA Rules 5190 and 6470, changes to NASD Rules 4200A, 4619A, and 6540, and to delete Incorporated NYSE Rule 392. FINRA also proposes to adopt current NASD Rule 2710 (Corporate Financing Rule - Underwriter Terms and Arrangements) except for paragraphs (b)(10) and (11) as FINRA Rule 5110 in the Consolidated FINRA Rulebook with technical changes to the rule text in the proposal. Publication is expected in the Federal Register during the week of August 11. (Rel. 34-58302)
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SECURITIES ACT REGISTRATIONS
Latest Securities Act registrations (TXT)
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RECENT 8K FILINGS
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http://www.sec.gov/news/digest/2008/dig080608.htm
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