SEC CHARGES MAN WITH TRADING BASED ON NONPUBLIC INFORMATION

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 23187 / February 3, 2015

Securities and Exchange Commission v. Joel J. Epstein, Civil Action No. 15-cv-0506

SEC Charges Pennsylvania Man with Insider Trading

The Securities and Exchange Commission today charged Joel J. Epstein of Huntingdon Valley, Pennsylvania with insider trading based on material nonpublic information that Epstein misappropriated from his son regarding Nationwide Mutual Insurance Company's merger with Harleysville Group, Inc. On the morning of September 29, 2011, Nationwide and Harleysville, a Pennsylvania-based insurance provider, announced that Nationwide would acquire all publicly-traded shares of Harleysville for $60 per share. At the end of trading on September 29, Harleysville's stock price closed at $58.96, approximately 87% higher than the previous day's close. Epstein has agreed to settle the matter. The settlement is pending final approval by the court.

According to the SEC's complaint filed in the U.S. District Court for the Eastern District of Pennsylvania, Epstein's son learned about the impending Harleysville merger from his long-time girlfriend who was a legal assistant at a law firm that was advising Harleysville on the transaction. On or before September 2, 2011, Epstein's son told him the information he learned from his girlfriend. The complaint further alleges that, between September 2 and September 28, 2011, in breach of a duty of trust and confidence owed to his son, Epstein misappropriated the information that he received from his son and purchased 4,000 shares of Harleysville stock. Epstein sold the shares after the public announcement of the acquisition, realizing ill-gotten gains of $113,503.

The SEC's complaint also alleges that Epstein tipped four people who each purchased 1,000 shares of Harleysville stock between September 21 and September 26, 2011. All four tippees sold their shares on the day of the public announcement, realizing total ill-gotten gains of $123,511.

Epstein has consented to the entry of a final judgment permanently enjoining him from violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder; and requiring him to pay disgorgement of $237,014, the amount of his and his tippees' ill-gotten gains, plus prejudgment interest of $21,599, and a civil penalty of $237,014.

The SEC's investigation, which is continuing, has been conducted by Kelly L. Gibson, Assunta Vivolo and John Rymas of the SEC's Market Abuse Unit along with John V. Donnelly of the Philadelphia Regional Office. The case has been supervised by Daniel M. Hawke, Chief of the Market Abuse Unit, and G. Jeffrey Boujoukos. The SEC appreciates the assistance of the U.S. Attorney's Office for the Eastern District of Pennsylvania, the Federal Bureau of Investigation, and the Financial Industry Regulatory Authority (FINRA).

SEC, FINRA ISSUE ALERT TO INVESTORS REGARDING SHELL COMPANIES BEING SOLD AS PENNY STOCKS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission’s Office of Investor Education and Advocacy and the Financial Industry Regulatory Authority (FINRA) issued an alert warning investors that some penny stocks being aggressively promoted as great investment opportunities may in fact be stocks of dormant shell companies with little to no business operations.

The investor alert provides tips to avoid pump-and-dump schemes in which fraudsters deliberately buy shares of very low-priced, thinly traded stocks and then spread false or misleading information to pump up the price.  The fraudsters then dump their shares, causing the prices to drop and leaving investors with worthless or nearly worthless shares of stock.

“Fraudsters continue to try to use dormant shell company scams to manipulate stock prices to the detriment of everyday investors,” said Lori J. Schock, Director of the SEC’s Office of Investor Education and Advocacy.  “Before investing in any company, investors should always remember to check out the company thoroughly.”

Gerri Walsh, FINRA’s Senior Vice President for Investor Education, said, “Investors should be on the lookout for press releases, tweets or posts aggressively promoting companies poised for explosive growth because of their ‘hot’ new product.  In reality, the company may be a shell, and the people behind the touts may be pump-and-dump scammers looking to lighten your wallet.”

The investor alert highlights five tips to help investors avoid scams involving dormant shell companies:

Research whether the company has been dormant – and brought back to life.  You can search the company name or trading symbol in the SEC’s EDGAR database to see when the company may have last filed periodic reports.
Know where the stock trades.  Most stock pump-and-dump schemes involve stocks that do not trade on The NASDAQ Stock Market, the New York Stock Exchange or other registered national securities exchanges.
Be wary of frequent changes to a company's name or business focus.  Name changes and the potential for manipulation often go hand in hand.
Check for mammoth reverse splits. A dormant shell company might carry out a 1-for-20,000 or even 1-for-50,000 reverse split.
Know that "Q" is for caution.  A stock symbol with a fifth letter "Q" at the end denotes that the company has filed for bankruptcy.

SEC CHAIRMAN WHITE'S ADDRESS AT SEC SPEAKS 2014

FROM:  SECURITIES AND EXCHANGE COMMISSION 
Chairman’s Address at SEC Speaks 2014
 Chair Mary Jo White
Washington, D.C.

Feb. 21, 2014

Good morning.  I am very honored to be giving the welcoming remarks and to offer a few perspectives from my first 10 months as Chair.  Looking back at remarks made by former Chairs at this event, the expectation seems to be for me to talk about the “State of the SEC.”  I will happily oblige on behalf of this great and critical agency.

In 1972, 42 years ago at the very first SEC Speaks, there were approximately 1,500 SEC employees charged with regulating the activities of 5,000 broker-dealers, 3,500 investment advisers, and 1,500 investment companies.

Today the markets have grown and changed dramatically, and the SEC has significantly expanded responsibilities.  There are now about 4,200 employees – not nearly enough to stretch across a landscape that requires us to regulate more than 25,000 market participants, including broker-dealers, investment advisers, mutual funds and exchange-traded funds, municipal advisors, clearing agents, transfer agents, and 18 exchanges.  We also oversee the important functions of self-regulatory organizations and boards such as FASB, FINRA, MSRB, PCAOB, and SIPC.  Only SIPC and FINRA’s predecessor, the NASD, even existed back in 1972.

Today the agency also faces an unprecedented rulemaking agenda.  Between the Dodd-Frank and JOBS Acts, the SEC was given nearly 100 new rulemaking mandates ranging from rules that govern the previously unregulated derivatives markets, impose proprietary trading restrictions on many financial institutions, increase transparency for hedge funds and private equity funds, give investors a say-on-executive pay, establish a new whistleblower program, lift the ban on general solicitation, reform and more intensely oversee credit rating agencies, and so many others.  These rulemakings, coupled with the implementation and oversight effort that each one brings, have added significantly to our already extensive responsibilities and challenge our limited resources.  These mandates also present the risk that they will crowd out or delay other pressing priorities.  But we must not let that happen.

All of this is upon us at a time when our funding falls significantly short of the level we need to fulfill our mission to investors, companies, and the markets.  As Chair, I owe a duty to Congress, the staff, and to the American people to use the funds we are appropriated prudently and effectively.  But it also is incumbent upon me to raise my voice when the SEC is not being provided with sufficient resources.  The SEC is deficit neutral.  Our appropriations are offset by modest transaction fees we collect from SROs.  What does that mean?  It means that if Congress provides us with increased funding, it will not increase the budget deficit or take resources from other programs or agencies, but it would go directly to protecting investors and strengthening our markets.  Given the critical role we play for investors and our expanded responsibilities, obtaining adequate funding for the SEC is and must be a top priority.

Fortunately, what has remained a constant over the years at the SEC is its magnificent and dedicated staff.  Indeed, it was the commitment, expertise, and moral, apolitical compass of the staff that led me here.  The SEC staff is a deep reservoir of extraordinary talent and expertise with a strong and enduring commitment to public service and independence.  And that is what has sustained the excellence of this agency since its founding.

Exercising my prerogative as Chair, I would now like to ask each SEC employee in the audience to stand and be recognized.  Please remain standing while I ask that everyone here today who once worked at the SEC to please also stand to be recognized.  In our most challenging moments, I urge all of us to think about the colleagues we just recognized, marvel at their public service and say thank you.

Back to the state of the SEC in 2014.

When I arrived at the SEC last April, I initially set three primary priorities: implementing the mandatory Congressional rulemakings of the Dodd-Frank and the JOBS Acts; intensifying the agency’s efforts to ensure that the U.S. equity markets are structured and operating to optimally serve the interests of all investors; and further strengthening our already robust enforcement program.  Ten months later, I am pleased with what we have accomplished.

Rulemaking
When I arrived, it was imperative to set an aggressive rulemaking agenda.  Congress had seen to that and our own core mission demanded it.  And, through the tireless work of the staff and my fellow Commissioners, we made significant progress.

On the day I was sworn in as Chair, we adopted identity theft rules requiring broker-dealers, mutual funds, investment advisers, and others regulated by us to adopt programs to detect red flags and prevent identity theft.[1]

A month later, we proposed rules to govern cross-border swap transactions in the multi-trillion dollar global over-the-counter derivatives markets.[2]

A month after that, we proposed rules to reform and strengthen the structure of money market funds. [3]

Last summer and fall, we made significant progress in implementing the reforms to the private offering market mandated by Congress in the JOBS Act.  We lifted the ban on general solicitation[4] and we proposed rules that would provide new investor protections and important data about this new market.[5]  We also proposed new rules that would permit securities-based crowdfunding and update and expand Regulation A.[6]

We adopted a Dodd-Frank Act rule disqualifying bad actors from certain private offerings.[7]

We adopted some of the most significant changes in years to the financial responsibility rules for broker-dealers.[8]

We adopted rules governing the registration and regulation of municipal advisors.[9]

We adopted rules removing references to credit agency ratings in certain broker-dealer and investment company regulations.[10]

In December, together with the banking regulators and the CFTC, we adopted regulations implementing the Volcker Rule.[11]

And, just last week we announced the selection of Rick Fleming, the deputy general counsel at the North American Securities Administrators Association, as the first Investor Advocate, a position established by Dodd-Frank.[12]

As even this partial list shows, we have made significant progress on our rulemakings, although more remains to be done.  But we must always keep the bigger picture in focus and not let the sheer number nor the sometimes controversial nature of the Congressional mandates distract us from other important rulemakings and initiatives that further our core mission as we set and carry out our priorities for the year ahead.

Other Critical Initiatives
To be more specific, in 2014, in addition to continuing to complete important rulemakings, we also will intensify our consideration of the question of the role and duties of investment advisers and broker dealers, with the goal of enhancing investor protection.  We will increase our focus on the fixed income markets and make further progress on credit rating agency reform.  We will also increase our oversight of broker-dealers with initiatives that will strengthen and enhance their capital and liquidity, as well as providing more robust protections and safeguards for customer assets.

We also will continue to engage with other domestic and international regulators to ensure that the systemic risks to our interconnected financial systems are identified and addressed – but addressed in a way that takes into account the differences between prudential risks and those that are not.  We want to avoid a rigidly uniform regulatory approach solely defined by the safety and soundness standard that may be more appropriate for banking institutions.

In 2014, we also will prioritize our review of equity market structure, focusing closely on how it impacts investors and companies of every size.  One near-term project that I will be pushing forward is the development and implementation of a tick-size pilot, along carefully defined parameters, that would widen the quoting and trading increments and test, among other things, whether a change like this improves liquidity and market quality.

In 2013, our Trading and Markets Division continued to develop the necessary empirical evidence to accurately assess our current equity market structure and to consider a range of possible changes.  Today we have better sources of data to inform our decisions.  For example, something we call MIDAS collects, nearly instantaneously, one billion trading data records every day from across the markets.  We have developed key metrics about the markets using MIDAS and placed them on our website last October so the public, academics, and all market participants could share, analyze, and react to the information that allows us to better test the various hypotheses about our markets to inform regulatory changes.[13]

The SEC, the SROs, and other market participants are also proceeding to implement the Consolidated Audit Trail Rule,[14] which when operational will further enhance the ability of regulators to monitor and analyze the equity markets on a more timely basis.  Indeed, it should result in a sea change in the data currently available, collecting in one place every order, cancellation, modification, and trade execution for all exchange-listed equities and equity options across all U.S. markets.  It is a difficult and complex undertaking, which must be accorded the highest priority by all to complete.

We also are very focused on ensuring the resilience of the systems used by the exchanges and other market participants.  It is critically important that the technology that connects market participants be deployed and used responsibly to reduce the risk of disruptions that can harm investors and undermine confidence in our markets.  A number of measures have already been taken and, in 2014, we will be focused on ensuring that more is done to address these vulnerabilities.  One significant vulnerability that must be comprehensively addressed across both the public and private sectors is the risk of cyber attacks.  To encourage a discussion and sharing of information and best practices, the SEC will be holding a cybersecurity roundtable in March.[15]

Enforcement
Let me turn to enforcement at the SEC in 2014 because vigorous and comprehensive enforcement of our securities laws must always be a very high priority at the SEC.  And it is.

When I arrived in April, I found what I expected to find – a very strong enforcement program.  Through extraordinary hard work and dedication, the Commission’s Enforcement Division achieved an unparalleled record of successful cases arising out of the financial crisis.  To date, we have charged 169 individuals or entities with wrongdoing stemming from the financial crisis – 70 of whom were CEOs, CFOs, or other senior executives.  At the same time, the Commission also brought landmark insider trading cases and created specialized units that pursued complex cases against investment advisers, broker dealers and exchanges, as well as cases involving FCPA violations, municipal bonds and state pension funds.  In 2013 alone, Enforcement’s labors yielded orders to return $3.4 billion in disgorgement and civil penalties, the highest amount in the agency’s history.  But there is always more to do.

Admissions
Last year, we modified the SEC’s longstanding no admit/no deny settlement protocol to require admissions in a broader range of cases.  As I have said before,[16] admissions are important because they achieve a greater measure of public accountability, which, in turn, can bolster the public’s confidence in the strength and credibility of law enforcement, and the safety of our markets.

When we first announced this change, we said that we would consider requiring admissions in certain types of cases, including those involving particularly egregious conduct, where a large numbers of investors were harmed, where the markets or investors were placed at significant risk, where the conduct undermines or obstructs our investigative processes, where an admission can send a particularly important message to the markets or where the wrongdoer poses a particular future threat to investors or the markets.  And now that we have resolved a number of cases with admissions, you have specific examples of where we think it is appropriate to require admissions as a condition of settlement.[17]  My expectation is that there will be more such cases in 2014 as the new protocol continues to evolve and be applied.

Financial Fraud Task Force
Last year, the Enforcement Division also increased its focus on accounting fraud through the creation of a new task force.[18]  The Division formed the Financial Reporting and Audit Task Force to look at trends or patterns of conduct that are risk indicators for financial fraud, including in areas like revenue recognition, asset valuations, and management estimates.  The task force draws on resources across the agency, including accountants in the Division of Corporation Finance and the Office of the Chief Accountant and our very talented economists in the Division of Economic Risk and Analysis (DERA).  The task force is focused on more quickly identifying potential material misstatements in financial statements and disclosures.  The program has already generated several significant investigations and more are expected to follow.

In addition to the new admissions protocol and the Financial Fraud Task Force, the Enforcement Division also has other exciting new initiatives including a new Microcap Task Force[19] and a renewed focus on those who serve as gatekeepers in our financial system, just to name a few.

* * *

We have talked about our rulemaking agenda, some of our ongoing market structure initiatives, and a bit about what is new and developing in Enforcement.  But what else lies ahead?

Corporation Finance: JOBS Act and Disclosure Reform
As we move to complete our rulemakings in the private offering arena, it is important for the SEC to keep focused on the public markets as well.  Our JOBS Act related-rulemaking will provide companies with a number of different alternatives to raise capital in the private markets.  Some have even suggested that if the private markets develop sufficient liquidity, there may not be any reason for a company to go public or become a public company in the way we think of it now.  That would not be the best result for all investors.

While the JOBS Act provides additional avenues for raising capital in the private markets and may allow companies to stay private longer, the public markets in the United States also continue to offer very attractive opportunities for capital.  They offer the transparency and liquidity that investors need and, at the same time, provide access to the breadth of sources of capital necessary to support significant growth and innovation.  For our part, we must consider how the SEC’s rules governing public offerings and public company reporting and disclosure may negatively impact liquidity in our markets and how they can be improved and streamlined, while maintaining strong investor protections.

Last year, I spoke about disclosure reform[20] and in December the staff issued a report that contains the staff’s preliminary conclusions and recommendations as to how to update our disclosure rules.[21]

What is next?

This year, the Corp Fin staff will focus on making specific recommendations for updating the rules that govern public company disclosure.  As part of this effort, Corp Fin will be broadly seeking input from companies and investors about how we can make our disclosure rules work better, and, specifically, investors will be asked what type of information they want, when do they want it and how companies can most meaningfully present that information.

Investment Management: Enhanced Asset Manager Risk Monitoring
The SEC of 2014 is an agency that increasingly relies on technology and specialized expertise.  This is particularly evident in the SEC’s new risk monitoring and data analytics activities.  One important example is the SEC’s new focus on risk monitoring of asset managers and funds.

Last year featured a very concrete success from these risk monitoring efforts when the SEC brought an enforcement case against a money market fund firm charging that it failed to comply with the risk limiting conditions of our rules.[22]

In the past year, the SEC has established a dedicated group of professionals to monitor large-firm asset managers.  These professionals who include former portfolio managers, investment analysts, and examiners track investment trends, review emerging market developments, and identify outlier funds.

The tools they use include analytics of data we receive, high-level engagement with asset manager executives and mutual fund boards, data-driven, risk-focused examinations, and with respect to money market funds certain stress testing results.

What is next?

I asked the IM staff for an “action plan” to enhance our asset manager risk management oversight program.  Among the initiatives under near-term consideration are expanded stress testing, more robust data reporting, and increased oversight of the largest asset management firms.  To be an effective 21st century regulator, the SEC is using 21st century tools to address the range of 21st century risks.

OCIE: Innovation in Exam Planning
We also are using powerful new data analytics and technology tools in our National Exam Program to conduct more effective and efficient risk-based examinations of our registrants.

OCIE’s Office of Risk Assessment and Surveillance aggregates and analyzes a broad band of data to identify potentially problematic behavior.  In addition to scouring the data that we collect directly from registrants, we look at data from outside the Commission, including information from public records, data collected by other regulators, SROs and exchanges, and information that our registrants provide to data vendors.  This expanded data collection and analysis not only enhances OCIE’s ability to identify risks more efficiently, but it also helps our examiners better understand the contours of a firm’s business activities prior to conducting an examination.

What is next?

The Office of Risk Assessment and Surveillance is developing exciting new technologies – text analytics, visualization, search, and predictive analytics – to cull additional red flags from internal and external data and information sources.  These tools will help our examiners be even more efficient and effective in analyzing massive amounts of data to more quickly and accurately hone in on areas that pose the greatest risks and warrant further investigation.  In an era of limited resources and expanding responsibilities, it is essential to identify and target these risks more systematically.  And we are doing that.

Conclusion
Let me stop here.  Hopefully, I have at least given you a window into the strong, busy, and proactive state of the SEC in 2014.  More importantly, throughout the next two days, you will hear directly from our staff about the many ways we are meeting the current challenges that we all face in our complex and rapidly changing markets and how we are preparing for tomorrow’s challenges.

This year as in every year, we look forward to hearing your ideas and input on our rulemakings and other initiatives.  Your views are very important to us and assist us to implement regulations that are true to our mission, effective, and workable.

Thank you and enjoy the conference.


[1] See Identity Theft Red Flags Rule Release No. 34-69359, (Apr. 10, 2013), available at http://www.sec.gov/rules/final/2013/34-69359.pdf.

[2] See Title VII of the Dodd-Frank Act and Cross-Border Security-Based Swap Activities; Re-Proposal of Regulation SBSR and Certain Rules and Forms Relating to the Registration of Security-Based Swap Dealers and Major Security-Based Swap Participants Release No. 34-69490, (May 1, 2013), available at http://www.sec.gov/rules/proposed/2013/34-69490.pdf.

[3] See Money Market Fund Reform; Amendments to Form PF Release No. 33-9408, (Jun. 5, 2013), available at http://www.sec.gov/rules/proposed/2013/33-9408.pdf.

[4] See Eliminating the Prohibition Against General Solicitation and General Advertising in Rule 506 and Rule 144A Offerings, Release No. 33-9415 (Jul. 10, 2013), available at http://www.sec.gov/rules/final/2013/33-9415.pdf.

[5] See Release No. 33-9416, Amendments to Regulation D, Form D and Rule 156 (Jul. 10, 2013).

[6] See Crowdfunding, Release No. 33-9470 (Oct. 23, 2013), available at http://www.sec.gov/rules/proposed/2013/33-9470.pdf and Proposed Rule Amendments for Small and Additional Issues Exemptions Under Section 3(b) of the Securities Act, Release No. 33-9497 (Dec. 18, 2013), available at http://www.sec.gov/rules/proposed/2013/33-9497.pdf.

[7] See Release No. 33-9414, Disqualification of Felons and Other “Bad Actors” (Jul. 10, 2013), available at http://www.sec.gov/rules/final/2013/33.9414.pdf.

[8] See Release No. 34-70072, Financial Responsibility Rules for Broker-Dealers (Jul. 30, 2013), available at http://www.sec.gov/rules/final/2013/34-70072.pdf.

[9] See Release No. 34-70462, Registration of Municipal Advisors (Sep. 20, 2013), available at http://www.sec.gov/rules/final/2013/34-70462.pdf.

[10] See Release No. 34-71194, Removal of Certain References to Credit Ratings Under the Securities Exchange Act of 1934 (Dec. 27, 2013), available at http://www.sec.gov/rules/final/2013/34-71194.pdf; Release No. 33-9506, Removal of Certain References to Credit Ratings Under the Investment Company Act (Dec. 27, 2013), available at http://www.sec.gov/rules/final/2013/33-9506.pdf.

[11] See Release No. BHCA-1, Prohibitions and Restrictions on Proprietary Trading and Certain Interests In, and Relationships With, Hedge Funds and Private Equity Funds Bank Holding Company Act (Dec. 10, 2013), available at http://www.sec.gov/rules/final/2013/bhca-1.pdf.

[12] See Press Release No. 2014-27, SEC Names Rick Fleming as Investor Advocate (Feb. 12, 2014), available at http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370540780377.

[13] The MIDAS web site and interactive tools are available at http://www.sec.gov/marketstructure.

[14] See Release No. 34-67457, Consolidated Audit Trail (Jul. 18, 2012), available at http://www.sec.gov/rules/final/2012/34-67457.pdf.

[15] See Press Release No. 2014-32, SEC to Hold Cybersecurity Roundtable (Feb. 14, 2014), available at http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370540793626.

[16] The Importance of Trials to the Law and Public Accountability, remarks at the 5th Annual Judge Thomas A. Flannery Lecture (Nov. 14, 2013), available at http://www.sec.gov/News/Speech/Detail/Speech/1370540374908.

[17] See Press Release No. 2013-159, Philip Falcone and Harbinger Capital Agree to Settlement (Aug. 19, 2013), available at http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370539780222; Press Release No. 2013-187, JPMorgan Chase Agrees to Pay $200 Million and Admits Wrongdoing to Settle SEC Charges (Sep. 19, 2013), available at http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370539819965; Press Release No. 2013-266, SEC Charges ConvergEx Subsidiaries With Fraud for Deceiving Customers About Commissions (Dec. 18, 2013), available at http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370540521484; Press Release No. 2014-17, Scottrade Agrees to Pay $2.5 Million and Admits Providing Flawed ‘Blue Sheet’ Trading Data (Jan. 29, 2014), available at http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370540696906.

[18] See SEC Spotlight on the Financial Reporting and Audit Task Force, available at https://www.sec.gov/spotlight/finreporting-audittaskforce.shtml.

[19] See SEC Spotlight on Microcap Fraud, available at http://www.sec.gov/spotlight/microcap-fraud.shtml.

[20] The Path Forward on Disclosure, remarks at the National Association of Corporate Directors Leadership Conference 2013 (Oct. 15, 2013), available at http://www.sec.gov/News/Speech/Detail/Speech/1370539878806.  See also The SEC in 2014, remarks at the 41st Annual Securities Regulation Institute (Jan. 27, 2014), available at http://www.sec.gov/News/Speech/Detail/Speech/1370540677500.

[21] Report on Review of Disclosure Requirements in Regulation S-K (Dec. 2013), available at http://www.sec.gov/news/studies/2013/reg-sk-disclosure-requirements-review.pdf.

[22] In the Matter of Ambassador Capital Management, LLC, and Derek H. Oglesby, Admin. Proc. File No. 3-15625 (2013), available at http://www.sec.gov/litigation/admin/2013/ia-3725.pdf.

SEC CHAIR WHITE ISSUED STATEMENT AFTER MEETING WITH LEADERS OF EXCHANGES

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

Securities and Exchange Commission Chair Mary Jo White today issued the following statement after meeting with leaders of the equities and options exchanges, FINRA, DTCC, and the Options Clearing Corporation.

Chair White called the meeting immediately following the August 22 interruption in the trading of NASDAQ-listed securities.

“Our securities markets are strong and work effectively for millions of investors and businesses.  The orderly functioning of those markets and the robustness of our market infrastructure are vitally important to our nation’s economy.  That is why we hold ourselves to very high standards.

“Today’s meeting was very constructive.  I stressed the need for all market participants to work collaboratively – together and with the Commission – to strengthen critical market infrastructure and improve its resilience when technology falls short.  To that end, I asked those at the meeting to work constructively with the Commission staff as we continue to consider ways to enhance the integrity of market systems.  They pledged to do so and I expect other market participants will do so as well.

“In short order, I also want those at the meeting – with the input of other market participants – to identify a series of concrete measures designed to address specific areas where the robustness and resilience of market systems can be improved, including the systems that were at the core of last month’s trading interruption.  The investing public deserves no less.”

SEC ISSUES INVESTOR ALERT REGARDING INVESTING IN PENSION OR SETTLEMENT INCOME STREAMS

FROM: U.S. SECURITIES AND EXCHANGE COMISSION
 
Washington, D.C., May 9, 2013 — The Securities and Exchange Commission and the Financial Industry Regulatory Authority (FINRA) today issued an investor alert.

The investor alert informs investors about the risks involved when selling their rights to an income stream or investing in someone else’s income stream. The alert urges investors considering an investment in pension or settlement income streams to proceed with caution.

Anyone receiving a monthly pension or regular distributions from a settlement following a personal injury lawsuit may be targeted by salespeople offering an immediate lump sum in exchange for the rights to some or all of the payments the person would otherwise receive in future. Typically, recipients of a pension or structured settlement will sign over the rights to some or all of their monthly payments to a factoring company in return for a lump-sum amount, which will almost always be significantly lower than the present value of that future income stream.

"Investors should always learn as much as possible before making an investment decision, and this is certainly true with respect to investing in pension or structured settlement income stream products," said Lori J. Schock, Director of the SEC’s Office of Investor Education and Advocacy. "This alert will help investors understand the costs as well as the potentially significant risks of these transactions."

Gerri Walsh, FINRA’s Senior Vice President for Investor Education, said, "Consumers should know that a series of potential pitfalls may greet anyone who is considering selling their rights to an income stream. And any investor who is tempted by the high yield offered by buying the rights to another person’s income stream should know that yield comes with high fees and considerable risks."

The investor alert contains a checklist of questions before selling away an income stream:

Is the transaction legal? Federal law may restrict or prohibit retirees from "assigning" their pension to someone else.
Is the transaction worth the cost? Find the discount rate that the factoring company has applied to your income stream and compare this rate to alternatives such as a bank loan.
What is the reputation of the company offering the lump sum? Check the factoring company’s record with the Better Business Bureau, and research the firm on the Internet and with a financial professional.
Will the factoring company require life insurance? The factoring company may require you to purchase a life insurance policy, which will add to your transaction expenses and reduce your payout.
What are the tax consequences? The lump-sum payment you collect may be taxable.
The investor alert also warns investors who might be attracted to the yield offered by buying the rights to someone else’s pension or structured settlement to be aware that:
Investors may encounter commissions of seven percent or higher.
Pension and structured settlement income-stream products may or may not be securities and likely are not registered with the SEC.
These products could be difficult to sell if you need money and want to sell the product.
Your "rights" to the income stream you purchased could face legal challenges.

MASSACHUSETTS RESIDENT SENTENCED FOR DEFRAUDING RARE COIN INVESTMENT CUSTOMERS

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

Defendant in SEC Action Sentenced On Related Criminal Charges, Receives 17 Year Sentence

The Securities and Exchange Commission announced today that on April 26, 2013, Arnett L. Waters of Milton, Massachusetts, a principal of a broker-dealer and investment adviser who is a defendant in a securities fraud action filed by the Commission in May 2012, was sentenced to 17 years in federal prison in a separate criminal action for orchestrating a securities fraud and for defrauding rare coin investment customers. Waters was also sentenced to three years of supervised release and $9,025,691 in restitution and forfeiture. The criminal charges were brought by the U.S. Attorney for the District of Massachusetts. Waters' guilty plea to securities fraud and other charges occurred on November 29, 2012, and followed an earlier guilty plea by Waters in October 2012 to criminal contempt charges for violating a preliminary injunction order obtained by the Commission in its case. The Commission's Order barring Waters from the securities industry was issued on December 3, 2012.

The Commission filed an emergency enforcement action against Waters on May 1, 2012, alleging that he and two companies under his control, broker-dealer A.L. Waters Capital, LLC and investment adviser Moneta Management, LLC, defrauded investors from at least 2009-2012 by, among other things, misappropriating investor funds and spending it on personal expenses. On May 3, 2012, the Court entered a preliminary injunction order that, among other things, froze Waters' assets and required him to provide an accounting of all his assets to the Commission. On August 7, 2012, the Commission filed a civil contempt motion against Waters, alleging that he had violated the court's preliminary injunction order by establishing an undisclosed bank account, transferring funds to that account, dissipating assets, and failing to disclose the bank account to the Commission, as required by the Court's order. On August 9, 2012, the U.S. Attorney for the District of Massachusetts filed a separate criminal contempt action against Waters based on the same allegations. On October 2, 2012, Waters pleaded guilty to the criminal contempt charges, and the Court ordered him detained pending sentencing.

On December 3, 2012, the Commission barred Waters from the securities industry, based on his October 2, 2012 guilty plea to criminal contempt. The Order bars Waters from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization, and from participating in any offering of a penny stock, including: acting as a promoter, finder, consultant, agent or other person who engages in activities with a broker, dealer or issuer for purposes of the issuance or trading in any penny stock, or inducing or attempting to induce the purchase or sale of any penny stock.

The U.S. Attorney for the District of Massachusetts charged Waters with an array of securities fraud and other violations on October 17, 2012. On November 29, 2012, Waters pleaded guilty to sixteen counts of securities fraud, mail fraud, money laundering, and obstruction of justice. The counts of the criminal information to which Waters pleaded guilty alleged that, from at least 2007 through 2012, he used fictitious investment-related partnerships to draw in investors, misappropriate their investment money, and spend the vast majority of it on personal and business expenses and debts. Waters raised at least $839,000 from at least thirteen investors, including $500,000 from his church in March 2012. Waters also pleaded guilty to engaging in a criminal scheme to defraud clients of his rare coin business. Under this scheme, Waters defrauded coin customers out of as much as $7.8 million by selling coins at prices inflated, on average, by 600% and by inducing coin purchasers to return coins to him, on the false representation that he would sell those coins on the customers' behalf, when, in fact, he sold most or all of the coins and kept the proceeds for himself. The criminal information to which Waters pleaded guilty further alleged that he engaged in money laundering through two transactions totaling $77,000. Finally, Waters pleaded guilty to allegations that he made multiple misrepresentations to Commission staff, including that there were no investors in his investment-related partnerships, in order to conceal the fact that investor money was misappropriated in a fraudulent scheme. Waters was charged with obstruction of justice related to this conduct.

The Commission acknowledges the assistance of the United States Attorney's Office for the District of Massachusetts, the Federal Bureau of Investigation and FINRA in this matter.

FORMER BROKERAGE EMPLOYEE CHARGED IN UNAUTHROIZED STOCK TRADING SCHEME

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C., April 15, 2013 — The Securities and Exchange Commission charged a former employee at a Connecticut-based brokerage firm with scheming to personally profit from placing unauthorized orders to buy Apple stock. When the scheme backfired, it ultimately caused the firm to cease operations.

David Miller, an institutional sales trader who lives in Rockville Centre, N.Y., has agreed to a partial settlement of the SEC's charges. He also pleaded guilty today in a parallel criminal case.

The SEC alleges that Miller misrepresented to Rochdale Securities LLC that a customer had authorized the Apple orders and assumed the risk of loss on any resulting trades. The customer order was to purchase just 1,625 shares of Apple stock, but Miller instead entered a series of orders totaling 1.625 million shares at a cost of almost $1 billion. Miller planned to share in the customer's profit if Apple's stock profited, and if the stock decreased he would claim that he erred on the size of the order. The stock wound up decreasing after an earnings announcement later that day, and Rochdale was forced to cease operations in the wake of covering the losses suffered from the rogue trades.

"Miller's scheme was deliberate, brazen, and ultimately ill-conceived," said Daniel M. Hawke, Chief of the SEC Enforcement Division's Market Abuse Unit. "This is a wake-up call to the brokerage industry that the unchecked conduct of even a single individual in a position of trust can pose grave risks to a firm and potentially to the markets and investors."

According to the SEC's complaint filed in federal court in Connecticut, Miller entered purchase orders for 1.625 million shares of Apple stock on Oct. 25, 2012, with the company's earnings announcement expected later that day. His plan was to share in the customer's profit from selling the shares if Apple's stock price increased. Alternatively, if Apple's stock price decreased, Miller planned to claim that he inadvertently misinterpreted the size of the customer's order, and Rochdale would then take responsibility for the unauthorized purchase and suffer the losses.

According to the SEC's complaint, Apple's stock price decreased after Apple's earnings release was issued on October 25. The customer denied buying all but 1,625 Apple shares, and Rochdale was forced to take responsibility for the unauthorized purchase. Rochdale then sold the Apple stock at an approximately $5.3 million loss, causing the value of the firm's available liquid assets to fall below regulatory limits required of broker-dealers. Rochdale had to cease operations shortly thereafter.

The SEC's complaint charges Miller with violations of Section 17(a)(1) and (3) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. To settle the SEC's charges, Miller will be barred in separate SEC administrative proceedings from working in the securities industry or participating in any offering of penny stock. In the partial settlement in court, Miller agreed to be enjoined from future violations of the antifraud provisions of the federal securities laws. A financial penalty will be determined at a later date by the court upon the SEC's motion.

In the criminal proceeding, Miller pleaded guilty to charges of wire fraud and conspiracy to commit securities and wire fraud. He will be sentenced on July 8.

The SEC's investigation, which is continuing, has been conducted by Eric A. Forni, David H. London, and Michele T. Perillo of the Market Abuse Unit in the Boston Regional Office. The SEC acknowledges the assistance of the U.S. Attorney's Office for the District of Connecticut, Federal Bureau of Investigation, and Financial Industry Regulatory Authority (FINRA).

SEC PROPOSES NEW RULES TO PROTECT MARKETS FROM TECHNOLOGY ISSUES

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C., March 7, 2013 — The Securities and Exchange Commission today unanimously proposed new rules to require certain key market participants to have comprehensive policies and procedures in place surrounding their technological systems.

The SEC’s proposal called Regulation SCI would replace the current voluntary compliance program with enforceable rules designed to better insulate the markets from vulnerabilities posed by systems technology issues.

Self-regulatory organizations, certain alternative trading systems, plan processors, and certain exempt clearing agencies would be required to carefully design, develop, test, maintain, and surveil systems that are integral to their operations. The proposed rules would require them to ensure their core technology meets certain standards, conduct business continuity testing, and provide certain notifications in the event of systems disruptions and other events.

"While it’s not possible to prevent every technological error that market participants may commit, we must ensure that our regulations are designed to minimize their impact on our markets and ultimately investors," said SEC Chairman Elisse B. Walter. "Reg SCI would provide more explicit technology and control standards to help ensure that our markets remain resilient against technological vulnerabilities."

The SEC will seek public comment on Reg SCI for 60 days following its publication in the Federal Register.

FACT SHEET

Improving Systems Compliance and Integrity

SEC Open Meeting
March 7, 2013

Background

Today’s securities markets rely extensively on technology more than ever before. As with any industry, the consequences can be significant when technology goes awry.

The high-speed automated trading that occurs both on national securities exchanges and alternative trading systems has heightened the potential for a technological problem to broadly impact the market.

Following the Flash Crash in May 2010, the SEC approved a series of measures to help limit the impact of such technological errors. For instance, the SEC approved rules to halt trading when a stock price falls too far, too fast as well as rules to provide certainty in advance of when an erroneous trade would be broken and rules to eliminate stub quotes.

Additionally, the SEC approved a rule known as the market access rule, which requires brokers and dealers with market access to put in place risk management controls and supervisory procedures designed to manage the financial, regulatory, and other risks posed to the markets by a malfunctioning of their technological systems.

Automation Review Policy

There are no mandatory rules governing the automated systems of self-regulatory organizations, such as national securities exchanges, clearing agencies, FINRA, and the MSRB. Instead, for the past two decades, they have followed a voluntary set of principles articulated in the SEC’s Automation Review Policy and participated in what is known as the ARP Inspection Program.

Recent technological issues in the securities markets including those that arose during the initial public offerings of Facebook and BATS Global Markets as well as the Knight Capital trading incident have shown that investors can be put at risk when technology fails, and confidence in the markets can falter.

The SEC convened a roundtable in October 2012 to discuss how market participants could prevent or at least mitigate systems issues, and how the response to such issues could be improved. The market closures following Superstorm Sandy also highlight the importance of having a robust market technology infrastructure. These events and discussions have helped shape the development of the rulemaking being proposed today.

Proposed Rule — Regulation SCI

The set of rules proposed by the Commission — called Regulation Systems Compliance and Integrity (Regulation SCI) — would formalize and make mandatory many of the provisions of the SEC’s Automation Review Policy that have developed during the last two decades. The proposed rule applies the policy and proposes additional measures to entities at the heart of U.S. securities market infrastructure in order to protect that infrastructure.

Regulation SCI would seek to ensure:
Core technology of national securities exchanges, significant alternative trading systems, clearing agencies, and plan processors meet certain standards.
These entities conduct business continuity testing with their members or participants.
These entities provide certain notifications regarding systems disruptions and other types of systems issues.
Regulation SCI is intended to reduce the chance of technology problems occurring in the first place and ensure that key entities are well-positioned to take appropriate corrective action if problems do occur.

SEC SAYS GOLDMAN, SACHS & CO. LACKED ADEQUATE PROCEDURES FOR RESEARCH "HUDDLES"

FROM:  SEC
SEC Charges Goldman, Sachs & Co. Lacked Adequate Policies and Procedures for Research “Huddles”
FOR IMMEDIATE RELEASE
2012-61
Washington, D.C., April 12, 2012 — The Securities and Exchange Commission today charged that Goldman, Sachs & Co. lacked adequate policies and procedures to address the risk that during weekly “huddles,” the firm’s analysts could share material, nonpublic information about upcoming research changes. Huddles were a practice where Goldman’s stock research analysts met to provide their best trading ideas to firm traders and later passed them on to a select group of top clients.

Goldman agreed to settle the charges and will pay a $22 million penalty. Goldman also agreed to be censured, to be subject to a cease-and-desist order, and to review and revise its written policies and procedures to correct the deficiencies identified by the SEC. The Financial Industry Regulatory Authority (FINRA) also announced today a settlement with Goldman for supervisory and other failures related to the huddles.

“Higher-risk trading and business strategies require higher-order controls,” said Robert S. Khuzami, Director of the Commission’s Division of Enforcement. “Despite being on notice from the SEC about the importance of such controls, Goldman failed to implement policies and procedures that adequately controlled the risk that research analysts could preview upcoming ratings changes with select traders and clients.”

The SEC in an administrative proceeding found that from 2006 to 2011, Goldman held weekly huddles sometimes attended by sales personnel in which analysts discussed their top short-term trading ideas and traders discussed their views on the markets. In 2007, Goldman began a program known as the Asymmetric Service Initiative (ASI) in which analysts shared information and trading ideas from the huddles with select clients.

According to the SEC’s order, the programs created a serious risk that Goldman’s analysts could share material, nonpublic information about upcoming changes to their published research with ASI clients and the firm’s traders. The SEC found these risks were increased by the fact that many of the clients and traders engaged in frequent, high-volume trading. Despite those risks, Goldman failed to establish adequate policies or adequately enforce and maintain its existing policies to prevent the misuse of material, nonpublic information about upcoming changes to its research. Goldman’s surveillance of trading ahead of research changes — both in connection with huddles and otherwise — was deficient.

“Firms must understand that they cannot develop new programs and services without evaluating their policies and procedures,” said Antonia Chion, Associate Director in the SEC’s Division of Enforcement.

In 2003, Goldman paid a $5 million penalty and more than $4.3 million in disgorgement and interest to settle SEC charges that, among other violations, it violated Section 15(f) of the Securities Exchange Act of 1934 by failing to establish, maintain, and enforce written policies and procedures reasonably designed to prevent the misuse of material, nonpublic information obtained from outside consultants about U.S. Treasury 30-year bonds.  The 2003 order found that although Goldman had policies and procedures regarding the use of confidential information, its policies and procedures should have identified specifically the potential for receiving material, nonpublic information from outside consultants. Goldman settled the SEC’s 2003 proceeding without admitting or denying the findings.

The order issued today finds that Goldman willfully violated Section 15(g) of the Exchange Act (formerly Section 15(f)). The SEC censured the firm and ordered it to cease and desist from committing or causing any violations and any future violations of Section 15(g) of the Exchange Act. Under the terms of the settlement, Goldman will pay a $22 million penalty, $11 million of which shall be deemed satisfied upon payment by Goldman of an $11 million penalty to FINRA in a related proceeding. The SEC considers a variety of factors, including prior enforcement actions, when determining sanctions.

In addition, Goldman agreed to complete a comprehensive review of the policies, procedures, and practices relating to the SEC’s findings in the order, and to adopt, implement, and maintain practices and written policies and procedures consistent with the findings of the order and the recommendations in the comprehensive review. In June 2011, Goldman entered into a consent order relating to the huddles and ASI with the Massachusetts Securities Division (Docket No. 2009-079). In the SEC’s action, Goldman admits to the factual findings to the extent those findings are also contained in Section V of the Massachusetts Consent Order, but otherwise neither admits nor denies the SEC’s findings.

Stacy Bogert, Drew Dorman, Dmitry Lukovsky, Alexander Koch, and Yuri Zelinsky in the SEC’s Division of Enforcement conducted the investigation.
The SEC thanks FINRA for its assistance in this matter.

SEC CHARGES CHICAGO BROKER WITH INSIDER TRADING IN NBTY STOCK

The following excerpt is from the SEC website:
Washington, D.C., March 15, 2012 – The Securities and Exchange Commission today charged a Chicago-based management consultant with insider trading based on confidential information about his client’s impending takeover of a Long Island-based vitamin company.

The SEC alleges that Sherif Mityas and others at his global management consulting firm were retained by Washington, D.C.-based private equity firm The Carlyle Group to provide strategic advice related to the acquisition of NBTY Inc. That same month, Mityas purchased NBTY stock and subsequently tipped a relative who also bought NBTY shares. After Carlyle publicly announced its acquisition of NBTY, Mityas and his relative sold their NBTY stock for a combined profit of nearly $38,000.

Mityas, who is a partner and vice president at the firm, has agreed to pay more than $78,000 to settle the SEC’s charges. In a parallel action, the U.S. Attorney’s Office for the Eastern District of New York today announced the unsealing of criminal charges against Mityas.

“Mityas was entrusted with highly confidential information but, driven by greed, he violated that trust and jeopardized a successful consulting career for the chance to make a quick buck,” said Sanjay Wadhwa, Deputy Chief of the SEC’s Market Abuse Unit and Associate Director of the New York Regional Office. “Corporate transactions such as mergers and acquisitions demand confidentiality until they become public, and not just from company employees but also from the lawyers, accountants, consultants, and others who work on the deals.”

According to the SEC’s complaint filed in U.S. District Court for the Eastern District of New York, Mityas’s firm was retained by Carlyle in May 2010. Only five days after being told during a May 17 conference call that NBTY was Carlyle’s acquisition target, Mityas moved $50,000 from a bank account he shared with a relative into a brokerage account they shared. On May 27, he transferred $49,000 from that brokerage account to a different relative’s brokerage account that he controlled as custodian, and then used those funds to purchase 1,300 shares of NBTY at a cost of more than $44,000. On July 7, based on a tip from Mityas, yet another relative bought 440 shares of NBTY stock. That same relative bought an additional 210 shares on July 14. Carlyle’s acquisition of NBTY was publicly announced the following day. Mityas sold all of his shares only three hours after the announcement was made, for an illegal profit of $25,896. The relative held the shares purchased on July 7 and 14 through the completion of the merger, and sold all of the shares on October 1 for an illicit profit of $12,035.

The SEC’s complaint charges Mityas with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The settlement, which is subject to court approval, would require Mityas to pay disgorgement of his and his relative’s ill-gotten gains totaling $37,931, plus prejudgment interest of $2,375.39, and a penalty of $37,931. The settlement also would bar Mityas from serving as an officer or director of a public company and permanently enjoin him from future violations of these provisions of the federal securities laws.

The SEC’s investigation was conducted by Daniel R. Marcus and Amelia A. Cottrell – members of the SEC’s Market Abuse Unit in New York – and Layla Mayer of the SEC’s New York Regional Office. The SEC acknowledges the assistance of the U.S. Attorney’s Office for the Eastern District of New York, the Federal Bureau of Investigation, and the Financial Industry Regulatory Authority (FINRA).

UNREGISTERED SECURITIES FRAUD NETS GOVERNMENT MILLIONS FROM FINES AND DISGOGEMENTS

The following is an excerpt from the SEC web site: November 15, 2011 “The Securities and Exchange Commission announced today that on November 8, 2011, the U.S. District Court for the Northern District of Texas ruled that Timothy Page, of Malibu, California, and his company Testre LP are liable for violating the registration provisions of the federal securities laws. The Court ordered Page to pay $2.49 million in disgorgement and $400,284 in prejudgment interest. The Court also ordered three relief defendants - Reagan Rowland and Rodney Rowland, of Los Angeles, California, and John Coutris, of Irving, Texas - to pay back their ill-gotten gains. The Commission's complaint alleged that Page and Testre violated the registration provisions of the federal securities laws when they engaged in an unregistered public offering of ConnectAJet.com, Inc., a reverse-merger company that claimed it would "revolutionize the aviation industry" by creating a real-time, online booking system for private jet travel. The Commission alleged that Page and his collaborators purchased tens of millions of shares directly from ConnectAJet.com, Inc. for pennies per share, under a purported registration exemption under the Securities Exchange Act of 1933, Regulation D, Rule 504. The Commission alleged that Page then touted the stock to investors through a national marketing campaign and dumped his shares into the public market when no registration statement was filed or in effect. The Court ruled that Page and Testre violated Section 5 of the Securities Act of 1933. In addition to the monetary relief granted by the Court, the Commission continues to seek the following additional relief against Page and Testre: civil penalties, penny stock bars, and injunctions from future violations of Section 5 of the Securities Act of 1933. Reagan Rowland and Rodney Rowland were ordered to pay $138,219 and John Coutris was ordered to pay $281,840 in ill-gotten gains they received from Ryan Reynolds, one of Page's collaborators. The Commission acknowledges the assistance of the Financial Industry Regulatory Authority (FINRA) in this matter.”

SEC REQUIRES COMPLETE AND ACCURATE DOCUMENTS FROM FINRA

The following excerpt is from the SEC website: “Washington, D.C., Oct. 27, 2011 — The Securities and Exchange Commission today ordered the Financial Industry Regulatory Authority (FINRA) to hire an independent consultant and undertake other remedial measures to improve its policies, procedures, and training for producing documents during SEC inspections. According to the SEC’s order instituting settled administrative proceedings, certain documents requested by the SEC’s Chicago Regional Office during an inspection were altered just hours before FINRA’s Kansas City District Office provided them. “The law requires FINRA to produce the documents the SEC seeks in its examinations in complete and accurate form,” said Gerald Hodgkins, Associate Director of the SEC’s Division of Enforcement. “Although FINRA has previously taken steps to improve compliance, those enhancements did not go far enough to prevent the document production failure that occurred in its Kansas City District Office. This order will help ensure that FINRA effectively addresses the weaknesses in its training as well as its policies and procedures.” The SEC’s order finds that on Aug. 7, 2008, the Director of FINRA’s Kansas City District Office caused the alteration of three records of staff meeting minutes just hours before producing them to the SEC inspection staff, making the documents inaccurate and incomplete. According to the SEC’s order, the production of the altered documents by the Kansas City District Office was the third instance during an eight-year period in which an employee of FINRA or its predecessor (National Association of Securities Dealers) provided altered or misleading documents to the SEC. FINRA has consented to engage an independent consultant within 30 days that will: Conduct a one-time comprehensive review of FINRA’s policies and procedures and training relating to document integrity. Assess whether the policies and procedures and training are reasonably designed and implemented to ensure the integrity of documents provided to the SEC. Make recommendations for the enhancement of FINRA’s policies and procedures and training as may be necessary in light of the consultant’s review and assessment. Without admitting or denying the findings, FINRA consented to the SEC’s order requiring it to cease and desist from committing or causing future violations of Section 17(a) of the Securities Exchange Act of 1934 and Exchange Act Rule 17a-1, and to comply with the undertakings described above. In determining to accept FINRA’s settlement offer, the Commission considered remedial acts promptly undertaken by FINRA and cooperation afforded the SEC staff.”

SEC CHARGES EXECUTIVE AND FIRM WITH INSIDER TRADING SCHEME INVOLVING MOLDFLOW CORPORATION, AUTODESK, INC. AND SALESFORCE,COM, INC

The following is an excerpt from the SEC website: “On August 31, 2011, the Securities and Exchange Commission charged James F. Turner II and his New Jersey-based hedge fund firm Clay Capital Management, LLC with engaging in an insider trading scheme that involved the securities of three companies – Moldflow Corporation, Autodesk, Inc. and Salesforce.com, Inc. The SEC also charged Turner’s brother-in-law Scott A. Vollmar, Turner’s friend Scott A. Robarge and Vollmar’s neighbor Mark A. Durbin for their roles in the scheme. In total, the scheme generated illicit gains of nearly $3.9 million. Filed in the U.S. District Court for the District of New Jersey, the SEC’s complaint alleges that Vollmar was a director of business development for Autodesk and tipped Turner and Durbin with inside information about Autodesk’s planned tender offer for Moldflow in advance of Autodesk’s public merger announcement on May 1, 2008. Turner traded on the information in his personal accounts, his family members’ accounts and the account of his hedge fund, Clay Capital Fund, LP. Turner also tipped Robarge about the tender offer and recommended that several other friends and family members purchase Moldflow stock. Robarge and Durbin traded on the inside information in their personal accounts. Robarge also recommended that one of his friends buy Moldflow stock. In total, the traders made illicit gains of $2.3 million from their trading in Moldflow stock. According to the SEC’s complaint, Vollmar also tipped Turner with inside information about Autodesk’s fourth quarter 2008 earnings in advance of Autodesk’s public earnings announcement on February 26, 2008. Turner traded on the information in his personal accounts, his family members’ accounts and the Clay Fund’s account. He again tipped Robarge and recommended that several other friends and family members sell short Autodesk stock and purchase Autodesk put options. In total, the traders made illicit gains of nearly $1.1 million from their trading in Autodesk securities. The SEC’s complaint further alleges that Robarge, a recruiting technology manager for Salesforce at the time, tipped Turner with confidential information about Salesforce’s performance in advance of the company’s public earnings announcement on February 27, 2008. Turner traded on the inside information in his personal accounts, his family members’ accounts and the Clay Fund’s account. Turner also recommended that several other friends and family members, including Vollmar, purchase Salesforce stock and call options. Robarge traded on the information in his personal account and recommended that one of his friends buy Salesforce securities. In total, the traders made illicit gains of nearly $500,000 from their trading in Salesforce securities. The SEC alleges that Clay Capital, Turner and Vollmar violated Section 17(a) of the Securities Act of 1933 and that Clay Capital, Turner, Vollmar, Robarge and Durbin violated Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3 thereunder. The complaint seeks permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest, and civil penalties. Without admitting or denying the SEC’s allegations, Robarge and Durbin have consented to the entry of final judgments permanently enjoining them from violating Sections 10(b) and 14(e) of the Exchange Act and Rules 10b-5 and 14e-3 thereunder. Robarge also agreed to pay disgorgement of $232,591.91, prejudgment interest of $31,884.93, and a penalty of $232,591.91. Durbin agreed to pay disgorgement of $8,391.26, prejudgment interest of $1,110.86, and a penalty of $8,391.26. The SEC appreciates the assistance of the Financial Industry Regulatory Authority (FINRA) and also thanks the U.S. Attorney’s Office for the District of New Jersey and the Federal Bureau of Investigation for their assistance in this matter.”

SEC GETS FAST FROZEN ASSETS OF THREE INSIDER TRADING FIRMS

The following is an excerpt from the SEC website:

Washington, D.C., July 18, 2011 – The Securities and Exchange Commission today announced that it has obtained asset freezes and other emergency relief against three Swiss-based entities it has charged with insider trading ahead of a July 11 public announcement that Swiss-based Lonza Group Ltd would be acquiring Connecticut-based Arch Chemicals Inc.

According to the SEC’s complaint filed on July 15 within days of the alleged insider trading, Compania International Financiera S.A., Coudree Capital Gestion S.A., and Chartwell Asset Management Services purchased more than a million common shares of Arch between July 5 and July 8, mostly in accounts based in London, England. Immediately after the acquisition announcement on July 11, the firms began selling the recently-purchased shares of Arch common stock for millions of dollars in profits.

According to the SEC’s complaint, at the time the three entities purchased their Arch shares, they are believed to have been in possession of material, non-public information about Lonza’s proposed acquisition of Arch.

“The SEC’s swift action to secure a judicial freeze order only four days after the observation of suspicious trading prevented millions of dollars from moving offshore,” said Robert Khuzami, Director of the SEC’s Division of Enforcement.

In filing its complaint in U.S. District Court for the Southern District of New York, the SEC requested emergency relief noting that because the defendants are foreign entities and placed their trades in overseas accounts, there was a substantial risk that, upon clearance at U.S. brokerage firms, the proceeds of the trades would likely be transferred overseas.

The Honorable P. Kevin Castel, acting as emergency judge, granted the SEC’s requested relief late in the day on July 15. Among other things, the court’s order froze certain assets of the defendants and ordered repatriation of all assets obtained from the trading described in the SEC’s complaint. The court has scheduled a preliminary injunction hearing in this matter for July 25 at 10 a.m. ET. The case has been assigned to the Honorable Denise L. Cote.

The SEC’s investigation was conducted by Assistant Regional Director Silvestre A. Fontes, Assistant Regional Director Sandra Bailey, and Senior Counsel Thomas J. Rappaport with assistance from the Division of Enforcement’s Market Abuse Unit headed by Daniel M. Hawke. The litigation will be conducted by Michael D. Foster. The SEC acknowledges the assistance of the FINRA Office of Fraud Detection and Market Intelligence in its investigation."

SEC INFORMS INVESTORS REGARDING TRADING SUSPENSIONS

The following information is from the SEC web site. It helps to define the parameters the SEC uses when suspending the trading in a particular security. The excerpt from the SEC page also tries to answer questions regarding the suspension of a security. If you have questions regarding SEC supensions please read the following:

"The federal securities laws allow the SEC to suspend trading in any stock for up to ten trading days. This document answers some of the typical questions we receive from investors about trading suspensions.


When can the SEC suspend a stock from trading?
When it serves the public interest and will protect investors, the SEC may suspend trading. For instance, the SEC may act when public information about a company is not current, accurate, or adequate. The SEC has acted when serious questions arose about a company's assets, operations, or other financial information.


Why couldn't the SEC forewarn me that it was about to suspend trading before I bought the security in the first place?
The SEC cannot announce that it's working on a suspension. We conduct this work confidentially to maintain our effectiveness and to guard against the destruction of evidence if our work becomes widely known. Confidentiality also protects a company and its shareholders if the SEC ultimately decides not to issue a trading suspension. Mindful of the seriousness of suspensions, the SEC moves as quickly as possible when it considers a trading suspension.


What happens when the ten-day suspension period ends? Will the SEC issue a statement about the status of the company after the suspension has ended?
No. The SEC will not comment publicly on the status of a company when the ten-day suspension ends because the company may still have serious legal problems. For instance, the SEC may continue to investigate a company to determine whether it has defrauded investors. The public will not know if the SEC is continuing its investigation until the SEC publicly announces an enforcement action against the company.


Will trading automatically resume after ten days?
It depends on the market where the stock trades. Different rules apply in different markets.

For stocks that trade in the OTC or the over-the-counter market, trading does not automatically resume when a suspension ends. (The OTC market includes the Bulletin Board and the Pink Sheets.) Before trading can resume for OTC stocks, SEC regulations require a broker-dealer to review information about a company before publishing a quote. If a broker-dealer does not have confidence that a company's financial statements are current and accurate, especially in light of the questions raised by the SEC, then a broker-dealer may not publish a quote for the company's stock.

In contrast to OTC stocks, stocks that trade on an exchange or Nasdaq resume trading as soon as an SEC suspension ends.


If the suspended stock resumes trading, why is it trading at a much lower price?
The trading suspension may raise serious questions and cast doubts about the company in the minds of investors. While some investors may be willing to buy the company's stock, they will do so only at significantly lower prices.


Why would the SEC take such action when it knows it will hurt current shareholders?
Because a suspension often causes a dramatic decline in the price of the security, the SEC suspends trading only when it believes the public may be making investment decisions based on false or misleading information. Suspensions give notice to current and potential investors that we have serious concerns about a company. A suspension may prevent potential investors from being victimized by a fraud.


How can I find out if the stock will trade again after a suspension?
You can contact the broker-dealer who sold you the stock or a broker-dealer who quoted the stock before the suspension. Ask the broker-dealer if it intends to resume publishing a quote in the company's stock.


If there is no market to sell my security, what can I do with my shares?
If there is no market to trade the shares, they may be worthless. You may want to contact your financial or tax adviser to determine how to treat such a loss on your tax return.


What can I do if the company acted wrongfully and I have lost money?
To get your money back, you will need to consider taking legal action on your own. The SEC cannot act as your lawyer. You must continue to pursue all of your legal remedies. For more information about how to protect your legal rights, including finding a lawyer who specializes in securities laws, read our flyer, How the SEC Handles Your Complaint or Inquiry.

To learn how to file an arbitration action against a broker-dealer, you can contact the Director of Arbitration at FINRA or the New York Stock Exchange. FINRA and the NYSE also offer mediation as an option before going to arbitration.


Where can I get information about trading suspensions?
You can find a list of companies whose stocks have been suspended by the SEC since October 1995 on our Web site.


How can I learn more?
We offer educational materials so that you can understand how the securities industry works and how you can avoid costly mistakes and fraud. Our educational materials also provide tips on how you can invest wisely. You can order our free publications by calling (800) SEC-0330, or read them on our Web site. For specific information about the risks of investing in low-priced stocks, see our publication, Microcap Stock: A Guide for Investors."