The following is an excerpt from the SEC website:
“Washington, D.C., June 10, 2011 – The Securities and Exchange Commission today proposed rules that would provide certain clearing agencies with exemptions from the registration requirements of the Securities Act of 1933 and the Securities Exchange Act of 1934 for security-based swaps that they issue.
The Dodd-Frank Wall Street Reform and Consumer Protection Act, which established a comprehensive framework for regulating the over-the-counter swaps markets, envisioned that certain security-based swaps would be cleared through a clearing agency. The proposed exemptions would facilitate the clearing of such security-based swaps.
A clearing agency generally acts as a middleman between the parties to a transaction, and when providing central counterparty services, assumes the risk should there be a default. When structured and operated appropriately, such a clearing agency can provide benefits such as improving the management of counterparty risk and reducing outstanding exposures through multilateral netting of trades.
The proposed rules would exempt transactions by clearing agencies in these security-based swaps from all provisions of the Securities Act, other than the Section 17(a) anti-fraud provisions, as well as exempt these security-based swaps from Exchange Act registration requirements and from the provisions of the Trust Indenture Act, provided certain conditions are met. Public comments on the proposed rules should be received by July 25, 2011.
On several previous occasions, the Commission has acted to facilitate clearing of certain credit default swaps by clearing agencies functioning as central counterparties. Among other things, the Commission previously adopted temporary rules that would exempt credit default swaps from these same registration and qualification requirements. The new proposed rules would create permanent exemptions that would cover these credit default swaps and the security-based swaps brought in through the Dodd-Frank Act and, as a result, supplant the temporary rules.
Because the current termination date for the temporary rules – July 16, 2011 – is expected to pass before the proposed exemptions are adopted, the Commission intends to extend the temporary rules in order to continue facilitating the clearing of certain credit default swaps by clearing agencies functioning as central counterparties.
The extension of these temporary rules is one part of a multi-step Commission effort to clarify the requirements that will apply to security-based swap transactions as of July 16 - the effective date of Title VII of the Dodd-Frank Act - and to provide appropriate temporary relief.”
This is a photo of the National Register of Historic Places listing with reference number 7000063
Friday, June 10, 2011
SEC CHIEF ACCOUNTANT SPEAKS AT SEC FINANCIAL REPORTING INSTITUTE COFERENCE
The following speech was excerpted from the SEC web site:
James L. Kroeker, Chief Accountant, in Pasadena, California, on June 5, 2011.
U.S. Securities and Exchange Commission
Pasadena, California
June 5, 2011
As a matter of policy, the Securities and Exchange Commission disclaims responsibility for any private publication or statement of any SEC employee or Commissioner. This speech expresses the author's views and does not necessarily reflect those of the Commission, the Commissioners, or other members of the SEC Staff.
Introduction
Good morning and thank you for that wonderful introduction. Once again, it is a pleasure to join you at the 30th SEC and Financial Reporting Institute Conference. As has been the case at each of these prior events, today, you will hear from a number of accounting experts — among them staff from the Commission’s Office of the Chief Accountant and Division of Corporation Finance. You will hear about a number of accounting and financial reporting matters, including those of particular focus for the staff. You will also learn about projects on our 2011 agenda.
Before I begin, I want to make clear that my remarks today represent my own views and not necessarily the views of the Commission, the individual Commissioners, or my colleagues on the Commission staff.
Last year at this Conference you heard about the comprehensive staff work plan on IFRS that we had developed and begun to execute. Since then, we have issued a progress report and, more recently, a Staff paper exploring a potential method of incorporation of IFRS, and I expect to continue to issue updates as our work progresses. The Commission is dedicating significant resources to the work of preparing the Commissioners to make a fully informed decision about IFRS – a decision that must reflect the best interest of U.S. investors and our capital markets.
Paul Beswick is here today and will be addressing the status of our work plan in further detail. While I would be happy to address any questions related to the work plan, today I would like to focus on several other accounting and auditing developments that are on our 2011 agenda.
Accounting
Let me start with several accounting developments.
Financial Reporting Series Forum
As part of our oversight of financial reporting, we are instituting a series of roundtable sessions – aptly named the Financial Reporting Series – to facilitate a balanced discussion of existing pressures or emerging issues in financial reporting.
The Financial Reporting Series will assist us in our early identification of risks related to, as well as areas for potential improvements in, the reliability and usefulness of financial reporting to investors. The approach will be one of inviting a cross section of capital markets participants, including investors, preparers, auditors, and others, to discuss their individual views.
The purpose of the roundtable is to gather a broad spectrum of views and foster an informed dialogue on some of the most difficult financial reporting topics. It is not meant to be some blue ribbon committee that produces a set of recommendations. Rather, I expect that the Series will provide the Commission staff, as well as the FASB and the PCAOB, with useful information about emerging issues and changes in the business environment that affect each of our respective roles in the financial reporting system.
In addition to the observer roles that the chairs of the FASB and PCAOB will have, we intend to invite other observers, for example staff from the federal banking regulators or Commission staff from other offices or divisions, depending on the subject matter of any given roundtable.
I anticipate that we will have three sessions per calendar year, depending on the nature and number of issues that arise. We will be looking for participants who are knowledgeable about the issue or issues to be discussed.
Consistent with other Commission roundtables, the sessions will be public and webcast and archived. I encourage you to watch for public announcements of the sessions in advance through a press release or on a devoted Financial Reporting Series webpage on the Commission’s website.
I expect our first roundtable session to be held later this year and to focus on a topic such as the role of uncertainty in financial reporting and whether right level of information about uncertainty is being provided.
Oversight of Standard Setting – Convergence Agenda
Another item on my agenda is convergence of accounting standards. As you will hear more about today, the FASB and IASB are jointly committed to enhancing and converging financial reporting standards and have been doing so with sustained focus over the past several years. They are nearing completion on a number of priority projects by the end of 2011 and are considering how best to require transition from the existing accounting standards to the standards that they are proposing.
I am pleased that the Boards are working on these important financial reporting issues, and that they are making progress toward resolution. Issuing high-quality standards is of the utmost importance. High-quality standards provide investors with relevant, reliable financial information to guide investment decisions. High-quality standards also can be understood and implemented by preparers and audited by auditors.
I am also pleased that the Boards are committed to following rigorous due process procedures, including pre-implementation testing and outreach, so that they are able to achieve the desired high-quality output. While performing research and conducting field studies are important elements of the process, it does take time. So, I support the Boards’ continued reprioritizing of their agendas and timelines to achieve high-quality, converged standards.
Further, I believe it is critical that, as it relates to the MOU projects, that the Boards take all reasonable steps to maximize the prospect of converged, high-quality solutions. For example, currently the Boards are not aligned as it relates to their approaches to consideration of hedge accounting in the context of their financial instruments project. Numerous conceptual, operational and practical questions have been raised based upon proposals to date that should be considered jointly by both Boards. I believe that , in the long run, a measure of added time to provide for joint deliberations on a project as critical and as complex as hedge accounting will prove to be far more beneficial than any gains that are perceived in finalizing deliberations individually.
In achieving high-quality, converged solutions, the Boards will inevitably be faced with difficult choices about how best to proceed. I continue to encourage the Boards to reconcile differences in the proposed standards and to work to reach converged and improved solutions to these difficult financial reporting issues. In monitoring the accounting standard-setting process, my focus tends to be on ensuring there is the appropriate balance between conceptual grounding and pragmatism in the standards being developed.
Oversight of Standard Setting – Standard Setting for Private Companies
I have also spent time understanding the report and recommendations put forward by a Blue-Ribbon Panel on Standard Setting for Private Companies. My focus in understanding those recommendations is to consider the nature and impact of any recommendations for private companies to apply accounting standards that may differ from those that public companies apply.
It is prudent, in my view, to carefully consider the nature of any differences and their effect on the capital formation process if private companies have to adopt a revised, and more stringent set of accounting policies in connection with preparing Commission filings to raise public capital. Further, it is important to understand why one might suggest a different standard for private companies.
I support the approach taken by the FAF Trustees in carefully considering the advice from this panel as they strategically assess the financial reporting system for private companies. Further, I believe that in a number of areas additional research, study, and outreach, particularly to investors, would be warranted prior to implementing any significant change in the standard-setting structure applicable to nonpublic entities.
Auditing
We also have a number of auditing items on our 2011 agenda, several of which arise from reflecting on lessons that can be learned as our nation emerges from the financial crisis.
Staff Study on Section 404(b) Internal Controls Reporting
As part of the Dodd-Frank Act legislation, the Commission was directed to study how the Commission could reduce the burden of complying with the auditor attestation requirement with respect to internal control over financial reporting in Section 404(b) of the Sarbanes-Oxley Act for companies whose market capitalization is between $75 and $250 million, while maintaining investor protections for such issuers and encouraging companies to raise public capital through U.S.-listed offerings.
Let me provide you with an update on our work in this area. We have issued the study, which is available on the Commission’s website.
In performing the study, we considered actions taken by the Commission and others since the enactment of Section 404(b) to consider the effects of the significant steps that have already been taken to reduce the overall compliance burden. Those steps since the Commission’s initial implementing rule was issued in 2003 have included:
a phased-in approach to compliance;
several extensions to the compliance dates;
relief for companies in an IPO and in the first annual report after a company’s IPO;
interpretive guidance for management regarding its evaluation of internal controls and disclosure requirements, which coincided with the PCAOB’s release of guidance for auditors; and
a prior study on Section 404, which was released in 2009 and forms part of the basis for the current study.
The information compiled for the study provided us with an understanding that:
The costs of complying with Section 404(b) have declined since the Commission first implemented the requirements of Section 404;
Investors generally view the auditor’s report required by Section 404(b) as beneficial;
Financial reporting is more reliable when the auditor is involved with ICFR assessments; and
Evidence does not suggest that Section 404(b) alone is affecting listing decisions of the studied range of issuers.
After considering the information gathered, we concluded the study with the following two recommendations:
The first recommendation was this: that the Commission maintain existing investor protections of Section 404(b) for accelerated filers, which have been in place since 2004 for domestic issuers and 2007 for foreign private issuers.
This recommendation reflects the staff’s view that the existing investor protections for accelerated filers to comply with the auditor attestation provisions of Section 404(b) should remain in place. There is strong evidence that the auditor’s role in auditing the effectiveness of ICFR improves the reliability of internal control disclosures and financial reporting overall and is useful to investors. I would note that the Dodd-Frank Act exempted approximately 60% of reporting issuers from Section 404(b), and the staff does not recommend further extending this exemption.
The second recommendation was this: that the Commission and Staff encourage activities that have potential to further improve both effectiveness and efficiency of Section 404(b) implementation.
For example, the staff has recommended that the PCAOB monitor its inspection results and consider publishing observations, beyond the observations previously published in September 2009, on the performance of audits conducted in accordance with AS 5. The objective in publishing these observations would be to provide auditors with the benefit of lessons that can be learned from internal control deficiencies identified through PCAOB inspections. I expect the PCAOB to consider taking action on this recommendation soon.
Role of the Auditor: Mitigating Financial Reporting Risk
We are also considering what lessons can be learned from the financial crisis about the role of the independent auditor, more broadly.
In exercising their vital function in our financial reporting system, auditors play a key role with respect to one particular type of risk: the risk of material misstatement in financial statements provided to investors, or “financial reporting risk.”
In looking specifically at the role of the auditor, it is critical to distinguish between financial reporting risk and other types of risk, such as business or operational risks, which may affect a company and impact investment decisions. While auditors must understand these risks to the extent that they impact financial reporting risk, the auditor’s procedures and communications are not designed to specifically address risks other than financial reporting risk or to make judgments about the merits of a company’s business strategies or management’s decisions in implementing them.
An audit is not designed, nor can it or should it be designed, to take all risk out of investing. An audit instead is designed to add to the credibility of the financial information provided to investors, so that investors can rely on that information when making his or her own investment decisions.
Focusing, then, on financial reporting risk, we are taking the opportunity to consider how the role of the auditor might be improved.
While PCAOB Chairman Doty will discuss in greater detail later today the PCAOB’s important role in improving auditor performance under existing standards and in improving existing auditing standards, I would like to underscore what I believe to be a good opportunity for renewed focus on the auditor’s reporting model.
I believe the PCAOB’s project relating to the auditor’s reporting model is a particularly important initiative in understanding whether there is information that investors are not getting from auditors today that would be useful in making investment decisions. Of course, there are fundamental questions to be considered. Questions such as: What information is needed? Who should provide it? In what form and manner should it be provided?
I look forward to the PCAOB’s work on that project. We will provide our perspective to the PCAOB on details of the project, including on questions such as whether the auditor should attest to information that is presented in MD&A or elsewhere outside of the financial statements.
While there might be opportunity for improved standards, I hasten to mention that there are existing requirements for disclosures of risks and uncertainties. To the extent that poorly performed audits failed to report substantial doubt about an entity’s ability to continue as a going concern where the auditing standards would have required such a warning, there are existing mechanisms for dealing with such misconduct, including SEC or PCAOB actions.
International Inspections
Before I conclude, let me turn to an international auditing matter.
U.S.-listed Foreign Companies
In recent years, we have seen a spike in private companies merging with a public shell companies While it is a number of companies from a particular country that have grabbed recent headlines, the problems coming to the forefront would not necessarily be limited to companies based in one geographic region.
There are a lot of different ways for companies to access the public markets of the United States, one of which is the reverse merger into a public shell. Since January of 2007, there have been over 600 registrations through a reverse merger.
The U.S. listing of certain companies located overseas has raised some unique issues. For example, the staff of the PCAOB recently highlighted concerns surrounding the quality of certain of the financial statement audits that they reviewed. As they noted, U.S. auditors may be issuing audit opinions on the financials, but not engaging in any of their own work. Instead, the U.S. firm may be issuing an opinion based almost entirely on work performed by audit firms outside of the U.S. This is significant for a number of reasons, including that the PCAOB has been to inspect audit firms in a number of countries.
While the majority of these listing via reverse merger may be legitimate businesses, some of them seem to have significant accounting deficiencies, even to the point of being frauds. We have recently seen an uptick in auditor resignations related to these sorts of issuers. The disclosed reasons for the resignations have included troubling information about the auditors being unable to confirm cash or other receivables, including in some instances allegations of falsified documents. We are looking at these situations closely, and I would encourage each of you to be vigilant as well.
Staff in my office, as well as across the Commission, have been working collaboratively and with the staff of the PCAOB and others to investigate concerns about financial reporting deficiencies or fraud in U.S.-listed foreign companies, with particular emphasis on companies engaging in reverse mergers to achieve registration.
Concluding Remarks
With that, let me end with where we started. We all have an important stake in these accounting and auditing topics to ensure that investors continue to have trust in the bedrock of our financial reporting system upon which so much of our capital market system rests.
Thank you.
James L. Kroeker, Chief Accountant, in Pasadena, California, on June 5, 2011.
U.S. Securities and Exchange Commission
Pasadena, California
June 5, 2011
As a matter of policy, the Securities and Exchange Commission disclaims responsibility for any private publication or statement of any SEC employee or Commissioner. This speech expresses the author's views and does not necessarily reflect those of the Commission, the Commissioners, or other members of the SEC Staff.
Introduction
Good morning and thank you for that wonderful introduction. Once again, it is a pleasure to join you at the 30th SEC and Financial Reporting Institute Conference. As has been the case at each of these prior events, today, you will hear from a number of accounting experts — among them staff from the Commission’s Office of the Chief Accountant and Division of Corporation Finance. You will hear about a number of accounting and financial reporting matters, including those of particular focus for the staff. You will also learn about projects on our 2011 agenda.
Before I begin, I want to make clear that my remarks today represent my own views and not necessarily the views of the Commission, the individual Commissioners, or my colleagues on the Commission staff.
Last year at this Conference you heard about the comprehensive staff work plan on IFRS that we had developed and begun to execute. Since then, we have issued a progress report and, more recently, a Staff paper exploring a potential method of incorporation of IFRS, and I expect to continue to issue updates as our work progresses. The Commission is dedicating significant resources to the work of preparing the Commissioners to make a fully informed decision about IFRS – a decision that must reflect the best interest of U.S. investors and our capital markets.
Paul Beswick is here today and will be addressing the status of our work plan in further detail. While I would be happy to address any questions related to the work plan, today I would like to focus on several other accounting and auditing developments that are on our 2011 agenda.
Accounting
Let me start with several accounting developments.
Financial Reporting Series Forum
As part of our oversight of financial reporting, we are instituting a series of roundtable sessions – aptly named the Financial Reporting Series – to facilitate a balanced discussion of existing pressures or emerging issues in financial reporting.
The Financial Reporting Series will assist us in our early identification of risks related to, as well as areas for potential improvements in, the reliability and usefulness of financial reporting to investors. The approach will be one of inviting a cross section of capital markets participants, including investors, preparers, auditors, and others, to discuss their individual views.
The purpose of the roundtable is to gather a broad spectrum of views and foster an informed dialogue on some of the most difficult financial reporting topics. It is not meant to be some blue ribbon committee that produces a set of recommendations. Rather, I expect that the Series will provide the Commission staff, as well as the FASB and the PCAOB, with useful information about emerging issues and changes in the business environment that affect each of our respective roles in the financial reporting system.
In addition to the observer roles that the chairs of the FASB and PCAOB will have, we intend to invite other observers, for example staff from the federal banking regulators or Commission staff from other offices or divisions, depending on the subject matter of any given roundtable.
I anticipate that we will have three sessions per calendar year, depending on the nature and number of issues that arise. We will be looking for participants who are knowledgeable about the issue or issues to be discussed.
Consistent with other Commission roundtables, the sessions will be public and webcast and archived. I encourage you to watch for public announcements of the sessions in advance through a press release or on a devoted Financial Reporting Series webpage on the Commission’s website.
I expect our first roundtable session to be held later this year and to focus on a topic such as the role of uncertainty in financial reporting and whether right level of information about uncertainty is being provided.
Oversight of Standard Setting – Convergence Agenda
Another item on my agenda is convergence of accounting standards. As you will hear more about today, the FASB and IASB are jointly committed to enhancing and converging financial reporting standards and have been doing so with sustained focus over the past several years. They are nearing completion on a number of priority projects by the end of 2011 and are considering how best to require transition from the existing accounting standards to the standards that they are proposing.
I am pleased that the Boards are working on these important financial reporting issues, and that they are making progress toward resolution. Issuing high-quality standards is of the utmost importance. High-quality standards provide investors with relevant, reliable financial information to guide investment decisions. High-quality standards also can be understood and implemented by preparers and audited by auditors.
I am also pleased that the Boards are committed to following rigorous due process procedures, including pre-implementation testing and outreach, so that they are able to achieve the desired high-quality output. While performing research and conducting field studies are important elements of the process, it does take time. So, I support the Boards’ continued reprioritizing of their agendas and timelines to achieve high-quality, converged standards.
Further, I believe it is critical that, as it relates to the MOU projects, that the Boards take all reasonable steps to maximize the prospect of converged, high-quality solutions. For example, currently the Boards are not aligned as it relates to their approaches to consideration of hedge accounting in the context of their financial instruments project. Numerous conceptual, operational and practical questions have been raised based upon proposals to date that should be considered jointly by both Boards. I believe that , in the long run, a measure of added time to provide for joint deliberations on a project as critical and as complex as hedge accounting will prove to be far more beneficial than any gains that are perceived in finalizing deliberations individually.
In achieving high-quality, converged solutions, the Boards will inevitably be faced with difficult choices about how best to proceed. I continue to encourage the Boards to reconcile differences in the proposed standards and to work to reach converged and improved solutions to these difficult financial reporting issues. In monitoring the accounting standard-setting process, my focus tends to be on ensuring there is the appropriate balance between conceptual grounding and pragmatism in the standards being developed.
Oversight of Standard Setting – Standard Setting for Private Companies
I have also spent time understanding the report and recommendations put forward by a Blue-Ribbon Panel on Standard Setting for Private Companies. My focus in understanding those recommendations is to consider the nature and impact of any recommendations for private companies to apply accounting standards that may differ from those that public companies apply.
It is prudent, in my view, to carefully consider the nature of any differences and their effect on the capital formation process if private companies have to adopt a revised, and more stringent set of accounting policies in connection with preparing Commission filings to raise public capital. Further, it is important to understand why one might suggest a different standard for private companies.
I support the approach taken by the FAF Trustees in carefully considering the advice from this panel as they strategically assess the financial reporting system for private companies. Further, I believe that in a number of areas additional research, study, and outreach, particularly to investors, would be warranted prior to implementing any significant change in the standard-setting structure applicable to nonpublic entities.
Auditing
We also have a number of auditing items on our 2011 agenda, several of which arise from reflecting on lessons that can be learned as our nation emerges from the financial crisis.
Staff Study on Section 404(b) Internal Controls Reporting
As part of the Dodd-Frank Act legislation, the Commission was directed to study how the Commission could reduce the burden of complying with the auditor attestation requirement with respect to internal control over financial reporting in Section 404(b) of the Sarbanes-Oxley Act for companies whose market capitalization is between $75 and $250 million, while maintaining investor protections for such issuers and encouraging companies to raise public capital through U.S.-listed offerings.
Let me provide you with an update on our work in this area. We have issued the study, which is available on the Commission’s website.
In performing the study, we considered actions taken by the Commission and others since the enactment of Section 404(b) to consider the effects of the significant steps that have already been taken to reduce the overall compliance burden. Those steps since the Commission’s initial implementing rule was issued in 2003 have included:
a phased-in approach to compliance;
several extensions to the compliance dates;
relief for companies in an IPO and in the first annual report after a company’s IPO;
interpretive guidance for management regarding its evaluation of internal controls and disclosure requirements, which coincided with the PCAOB’s release of guidance for auditors; and
a prior study on Section 404, which was released in 2009 and forms part of the basis for the current study.
The information compiled for the study provided us with an understanding that:
The costs of complying with Section 404(b) have declined since the Commission first implemented the requirements of Section 404;
Investors generally view the auditor’s report required by Section 404(b) as beneficial;
Financial reporting is more reliable when the auditor is involved with ICFR assessments; and
Evidence does not suggest that Section 404(b) alone is affecting listing decisions of the studied range of issuers.
After considering the information gathered, we concluded the study with the following two recommendations:
The first recommendation was this: that the Commission maintain existing investor protections of Section 404(b) for accelerated filers, which have been in place since 2004 for domestic issuers and 2007 for foreign private issuers.
This recommendation reflects the staff’s view that the existing investor protections for accelerated filers to comply with the auditor attestation provisions of Section 404(b) should remain in place. There is strong evidence that the auditor’s role in auditing the effectiveness of ICFR improves the reliability of internal control disclosures and financial reporting overall and is useful to investors. I would note that the Dodd-Frank Act exempted approximately 60% of reporting issuers from Section 404(b), and the staff does not recommend further extending this exemption.
The second recommendation was this: that the Commission and Staff encourage activities that have potential to further improve both effectiveness and efficiency of Section 404(b) implementation.
For example, the staff has recommended that the PCAOB monitor its inspection results and consider publishing observations, beyond the observations previously published in September 2009, on the performance of audits conducted in accordance with AS 5. The objective in publishing these observations would be to provide auditors with the benefit of lessons that can be learned from internal control deficiencies identified through PCAOB inspections. I expect the PCAOB to consider taking action on this recommendation soon.
Role of the Auditor: Mitigating Financial Reporting Risk
We are also considering what lessons can be learned from the financial crisis about the role of the independent auditor, more broadly.
In exercising their vital function in our financial reporting system, auditors play a key role with respect to one particular type of risk: the risk of material misstatement in financial statements provided to investors, or “financial reporting risk.”
In looking specifically at the role of the auditor, it is critical to distinguish between financial reporting risk and other types of risk, such as business or operational risks, which may affect a company and impact investment decisions. While auditors must understand these risks to the extent that they impact financial reporting risk, the auditor’s procedures and communications are not designed to specifically address risks other than financial reporting risk or to make judgments about the merits of a company’s business strategies or management’s decisions in implementing them.
An audit is not designed, nor can it or should it be designed, to take all risk out of investing. An audit instead is designed to add to the credibility of the financial information provided to investors, so that investors can rely on that information when making his or her own investment decisions.
Focusing, then, on financial reporting risk, we are taking the opportunity to consider how the role of the auditor might be improved.
While PCAOB Chairman Doty will discuss in greater detail later today the PCAOB’s important role in improving auditor performance under existing standards and in improving existing auditing standards, I would like to underscore what I believe to be a good opportunity for renewed focus on the auditor’s reporting model.
I believe the PCAOB’s project relating to the auditor’s reporting model is a particularly important initiative in understanding whether there is information that investors are not getting from auditors today that would be useful in making investment decisions. Of course, there are fundamental questions to be considered. Questions such as: What information is needed? Who should provide it? In what form and manner should it be provided?
I look forward to the PCAOB’s work on that project. We will provide our perspective to the PCAOB on details of the project, including on questions such as whether the auditor should attest to information that is presented in MD&A or elsewhere outside of the financial statements.
While there might be opportunity for improved standards, I hasten to mention that there are existing requirements for disclosures of risks and uncertainties. To the extent that poorly performed audits failed to report substantial doubt about an entity’s ability to continue as a going concern where the auditing standards would have required such a warning, there are existing mechanisms for dealing with such misconduct, including SEC or PCAOB actions.
International Inspections
Before I conclude, let me turn to an international auditing matter.
U.S.-listed Foreign Companies
In recent years, we have seen a spike in private companies merging with a public shell companies While it is a number of companies from a particular country that have grabbed recent headlines, the problems coming to the forefront would not necessarily be limited to companies based in one geographic region.
There are a lot of different ways for companies to access the public markets of the United States, one of which is the reverse merger into a public shell. Since January of 2007, there have been over 600 registrations through a reverse merger.
The U.S. listing of certain companies located overseas has raised some unique issues. For example, the staff of the PCAOB recently highlighted concerns surrounding the quality of certain of the financial statement audits that they reviewed. As they noted, U.S. auditors may be issuing audit opinions on the financials, but not engaging in any of their own work. Instead, the U.S. firm may be issuing an opinion based almost entirely on work performed by audit firms outside of the U.S. This is significant for a number of reasons, including that the PCAOB has been to inspect audit firms in a number of countries.
While the majority of these listing via reverse merger may be legitimate businesses, some of them seem to have significant accounting deficiencies, even to the point of being frauds. We have recently seen an uptick in auditor resignations related to these sorts of issuers. The disclosed reasons for the resignations have included troubling information about the auditors being unable to confirm cash or other receivables, including in some instances allegations of falsified documents. We are looking at these situations closely, and I would encourage each of you to be vigilant as well.
Staff in my office, as well as across the Commission, have been working collaboratively and with the staff of the PCAOB and others to investigate concerns about financial reporting deficiencies or fraud in U.S.-listed foreign companies, with particular emphasis on companies engaging in reverse mergers to achieve registration.
Concluding Remarks
With that, let me end with where we started. We all have an important stake in these accounting and auditing topics to ensure that investors continue to have trust in the bedrock of our financial reporting system upon which so much of our capital market system rests.
Thank you.
SEC ANNOUNCES A COMPLAINT FOR MISLEADING INTERNET WEBSITE
Lying on websites is very common as all Webster persons like I well know. However, it becomes in the eyes of some a criminal activity when selling investments. The following excerpt from the SEC website is an example of a company that is accused of misleading investors via the internet:
“The Securities and Exchange Commission announced the filing of a complaint in federal district court against Copper King Mining Corp. (Copper King), Alexander Lindale, LLC (Alexander Lindale), Mark D. Dotson (Dotson), Wilford R. Blum (Blum) and Stephen G. Bennett (Bennett). The complaint alleges that Copper King and its prior President and CEO, Dotson, authored and distributed false and misleading information on Copper King’s Internet website regarding the company’s ability to produce revenue, its ability to extract significant amounts of copper and other metals, its receipt of an irrevocable purchase order for its copper, and its receipt of a firm funding commitment for $100 million to pay for operations and build an ore processing mill.
The complaint further alleges that Dotson knowingly allowed Alexander Lindale and Blum, a Salt Lake City stock promoter, to issue additional false press releases and conduct an unregistered offer and distribution of Copper King stock. Alexander Lindale and Blum were assisted by Bennett, a disbarred Utah attorney, who authored bogus stock tradability opinion letters when he was not properly licensed to issue such opinions. Bennett’s stock tradability opinion letters were used as the legal authority that enabled Copper King’s stock transfer agent to issue and distribute the company’s stock pursuant to Blum’s instructions.
The complaint also alleges that Alexander Lindale and Blum raised an approximate $12,280,419 in proceeds from Blum’s improper sales Copper King stock from 2008 through 2010. Blum provided Copper King with approximately $9,063,567 in cash or services while Alexander Lindale received approximately $3,291,352 from Blum’s sales Copper King stock. The complaint alleges that Alexander Lindale and Blum also operated as unregistered brokers or dealers.
The Commission’s complaint charges Copper King, Dotson and Bennett with violations of Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 (Securities Act) and Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder. The complaint charges Alexander Lindale and Blum with violations of Section 5(a) and 5(c) of the Securities Act and Section 15(a) of the Exchange Act. The complaint seeks injunctive relief, disgorgement, civil penalties and penny stock bars from defendants.
The Commission acknowledges the assistance of the United States Attorney’s Office for the District of Utah, the Salt Lake Office of the Federal Bureau of Investigation, the Criminal Division of the Internal Revenue Service, Salt Lake Office, and the Bureau of Land Management, Arizona State Office, St. George Field Office, and Salt Lake City, Field Office.”
“The Securities and Exchange Commission announced the filing of a complaint in federal district court against Copper King Mining Corp. (Copper King), Alexander Lindale, LLC (Alexander Lindale), Mark D. Dotson (Dotson), Wilford R. Blum (Blum) and Stephen G. Bennett (Bennett). The complaint alleges that Copper King and its prior President and CEO, Dotson, authored and distributed false and misleading information on Copper King’s Internet website regarding the company’s ability to produce revenue, its ability to extract significant amounts of copper and other metals, its receipt of an irrevocable purchase order for its copper, and its receipt of a firm funding commitment for $100 million to pay for operations and build an ore processing mill.
The complaint further alleges that Dotson knowingly allowed Alexander Lindale and Blum, a Salt Lake City stock promoter, to issue additional false press releases and conduct an unregistered offer and distribution of Copper King stock. Alexander Lindale and Blum were assisted by Bennett, a disbarred Utah attorney, who authored bogus stock tradability opinion letters when he was not properly licensed to issue such opinions. Bennett’s stock tradability opinion letters were used as the legal authority that enabled Copper King’s stock transfer agent to issue and distribute the company’s stock pursuant to Blum’s instructions.
The complaint also alleges that Alexander Lindale and Blum raised an approximate $12,280,419 in proceeds from Blum’s improper sales Copper King stock from 2008 through 2010. Blum provided Copper King with approximately $9,063,567 in cash or services while Alexander Lindale received approximately $3,291,352 from Blum’s sales Copper King stock. The complaint alleges that Alexander Lindale and Blum also operated as unregistered brokers or dealers.
The Commission’s complaint charges Copper King, Dotson and Bennett with violations of Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 (Securities Act) and Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder. The complaint charges Alexander Lindale and Blum with violations of Section 5(a) and 5(c) of the Securities Act and Section 15(a) of the Exchange Act. The complaint seeks injunctive relief, disgorgement, civil penalties and penny stock bars from defendants.
The Commission acknowledges the assistance of the United States Attorney’s Office for the District of Utah, the Salt Lake Office of the Federal Bureau of Investigation, the Criminal Division of the Internal Revenue Service, Salt Lake Office, and the Bureau of Land Management, Arizona State Office, St. George Field Office, and Salt Lake City, Field Office.”
M25 AND M37 REGISTRATIONS REVOKED AS TEXAS COMMODITY TRADERS
Whenever there is a market blow-up then ultimately cases of criminal and civil fraud are exposed. Fraud was uncovered duing the last stock market bust, real estate market bubble and, now the commodity prices seem to be falling apart. The following case is an excerpt from the CFTC web site and involves the revocation of registrations for two commodity trading advisors:
“Washington, DC - The U.S. Commodity Futures Trading Commission (CFTC) revoked the registrations of M25 Investments, Inc. (M25) and M37 Investments, LLC (M37), of Waxahachie, Texas, as registered Commodity Trading Advisors. The Initial Decision, issued on May 4, 2011 by a CFTC Administrative Law Judge (ALJ), resolves a CFTC statutory disqualification proceeding brought against M25 and M37 on February 23, 2011.
In the Initial Decision, the ALJ entered a default judgment against M25 and M37 and found that M25 and M37 were unfit for registration based upon the entry of an order for permanent injunction, other equitable relief, and for civil penalties on October 25, 2010 in the U. S. District Court for the Northern District of Texas (see CFTC Press Release 5927-10, October 27, 2010).
The federal district court’s October 25, 2010 order found that, from December 2007 to September 2009, the defendants and their representatives fraudulently solicited individuals, often targeting elderly persons through their churches, in West Virginia, Texas, Mississippi, Maryland and other states to trade forex and forex options. The order prohibits M25 and M37 from violating the Commodity Exchange Act as charged and from seeking registration with the CFTC in any capacity, among other sanctions. The district court also ordered M25 and M37, among other defendants, to jointly and severally pay restitution to defrauded customers of $7,404,036.56 and required M25 and M37 to jointly and severally pay a $7.1 million civil monetary penalty.”
“Washington, DC - The U.S. Commodity Futures Trading Commission (CFTC) revoked the registrations of M25 Investments, Inc. (M25) and M37 Investments, LLC (M37), of Waxahachie, Texas, as registered Commodity Trading Advisors. The Initial Decision, issued on May 4, 2011 by a CFTC Administrative Law Judge (ALJ), resolves a CFTC statutory disqualification proceeding brought against M25 and M37 on February 23, 2011.
In the Initial Decision, the ALJ entered a default judgment against M25 and M37 and found that M25 and M37 were unfit for registration based upon the entry of an order for permanent injunction, other equitable relief, and for civil penalties on October 25, 2010 in the U. S. District Court for the Northern District of Texas (see CFTC Press Release 5927-10, October 27, 2010).
The federal district court’s October 25, 2010 order found that, from December 2007 to September 2009, the defendants and their representatives fraudulently solicited individuals, often targeting elderly persons through their churches, in West Virginia, Texas, Mississippi, Maryland and other states to trade forex and forex options. The order prohibits M25 and M37 from violating the Commodity Exchange Act as charged and from seeking registration with the CFTC in any capacity, among other sanctions. The district court also ordered M25 and M37, among other defendants, to jointly and severally pay restitution to defrauded customers of $7,404,036.56 and required M25 and M37 to jointly and severally pay a $7.1 million civil monetary penalty.”
Thursday, June 9, 2011
SEC SUSPENDS TRADING IN 17 COMPANIES
The SEC alleges widespread fraud in microcap companies and has suspended trading in 17 firms. The following is an excerpt from the SEC website:
Washington, D.C., June 7, 2011 — The Securities and Exchange Commission today suspended trading in 17 microcap stocks because of questions about the adequacy and accuracy of publicly available information about the companies, which trade in the over-the-counter (OTC) market.
The trading suspensions spring from a joint effort by SEC regional offices in Los Angeles, Miami, New York, and Philadelphia; its Office of Market Intelligence; and its new Microcap Fraud Working Group, which uses a coordinated, proactive approach to detecting and deterring fraud involving microcap securities. The trading suspensions follow a similar suspension last week against Uniontown Energy Inc. (UTOG), based in Henderson, Nev., and Vancouver, Canada.
“They may be called ‘penny stocks,’ but victims of microcap fraud can suffer devastating losses,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “The SEC’s new Microcap Fraud Working Group is targeting the insiders and promoters, as well as the transfer agents, attorneys, auditors, broker-dealers, and other “gatekeepers” who flourish in the shadows of this less-than-transparent market.”
George Canellos, Director of the SEC’s New York Regional Office, added, “The investing public does not have accurate or adequate information about these securities to use in making informed investment decisions. Nonetheless, stock-touting websites, twitter users, and often anonymous individuals posting to Internet message boards have hyped many of these companies, and these promotional campaigns have been followed by spikes in share price and trading volume.”
The 17 companies and their ticker symbols are:
American Pacific Rim Commerce Group (APRM), based in Citra, Fla.
Anywhere MD, Inc. (ANWM), based in Altascadero, Calif.
Calypso Wireless Inc. (CLYW), based in Houston.
Cascadia Investments, Inc. (CDIV), based in Tacoma, Wash.
CytoGenix Inc. (CYGX), based in Houston.
Emerging Healthcare Solutions Inc. (EHSI), based in Houston.
Evolution Solar Corp. (EVSO), based in The Woodlands, Texas.
Global Resource Corp. (GBRC), based in Morrisville, N.C.
Go Solar USA Inc. (GSLO), based in New Orleans.
Kore Nutrition Inc. (KORE), based in Henderson, Nev.
Laidlaw Energy Group Inc. (LLEG), based in New York City.
Mind Technologies Inc. (METK), based in Cardiff, Calif.
Montvale Technologies Inc. (IVVI), based in Montvale, N.J.
MSGI Security Solutions Inc. (MSGI), based in New York City.
Prime Star Group Inc. (PSGI), based in Las Vegas, Nev.
Solar Park Initiatives Inc. (SOPV), based in Ponte Verde Beach, Fla.
United States Oil & Gas Corp. (USOG), based in Austin, Texas.
Some examples of the promotions are as follows:
Calypso Wireless Inc. has not filed periodic reports since February 2008, when it filed a report for the period ending Sept. 30, 2007. Despite that, the company’s share price rose from 4 cents on Sept. 21, 2010 to an intra-day high of 17 cents on Sept. 24, 2010. Over the same period, trading volume jumped to nearly six million shares, up from 376,000 shares. On Sept. 24, 2010, a stock-promoting website encouraged investors to continue buying Calypso Wireless shares (PINK: CLYW, CLYW message board), stating, in part, “Over the week, CLYW stock has been running wild … This CLYW stock rush happened just like that, on no company’s news and on old, well known SEC filings, done for the investment community.”
Shares in Kore Nutrition Inc. began to spike on Aug. 31, 2010, following the release of a company-paid research report setting a target price of $10.50. Moreover, on Sept. 1 and 8, 2010, the company issued press releases announcing new distribution agreements to market its energy drinks. The research report and distribution agreement claims were reiterated on numerous stock-promotion websites, touting Kore Nutrition as a “winner.” Kore Nutrition’s quarterly report for the period ending Sept. 30, 2010, filed with the SEC on Nov. 15, 2010, made no mention of the announced distribution agreements.
Montvale Technologies Inc. announced the dissolution of the company on Feb. 12, 2010, and last filed financial statements with the SEC for the third quarter of 2009. The company’s shares have nonetheless continued to trade, and to be promoted. On Dec. 22, 2010, a website recommended a “closer look” at Montvale Technologies, claiming it “has the potential to do very well in the short term.” That day, the share price rose 75 percent from 12 cents to 20 cents, and trading volume soared 500 percent over the prior day.
The Microcap Fraud Working Group is a joint initiative of the SEC’s Division of Enforcement and Office of Compliance Inspections and Examinations. The Working Group is pursuing a strategic approach to combating microcap fraud by focusing on recidivists and insiders, and on the attorneys, auditors, broker-dealers, transfer agents and other gatekeepers that facilitate a large volume of the fraud in this sector. The Working Group is comprised of staff from the SEC’s headquarters in Washington D.C., each of its 11 regional offices, and from the Office of Market Intelligence, Division of Corporation Finance, Division of Risk, Strategy, and Financial Innovation, Office of General Counsel, Division of Trading and Markets, and the Division of Investment Management.”
It is great to see how the SEC is now able to coordinate all its different pieces to go after fraudsters. The microcap world of securities has always been a mystery to me. Perhaps some investors have the knowledge and resources to navigate through the world of microcaps and make a profit. For most of us because microcaps are so had to get real information on, investing in microcap securities often feels like gambling. And, whenever someone offers up an investment to make gigantic returns in a hurry it seems that in every case some sort of fraud is being perpetrated.
Washington, D.C., June 7, 2011 — The Securities and Exchange Commission today suspended trading in 17 microcap stocks because of questions about the adequacy and accuracy of publicly available information about the companies, which trade in the over-the-counter (OTC) market.
The trading suspensions spring from a joint effort by SEC regional offices in Los Angeles, Miami, New York, and Philadelphia; its Office of Market Intelligence; and its new Microcap Fraud Working Group, which uses a coordinated, proactive approach to detecting and deterring fraud involving microcap securities. The trading suspensions follow a similar suspension last week against Uniontown Energy Inc. (UTOG), based in Henderson, Nev., and Vancouver, Canada.
“They may be called ‘penny stocks,’ but victims of microcap fraud can suffer devastating losses,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “The SEC’s new Microcap Fraud Working Group is targeting the insiders and promoters, as well as the transfer agents, attorneys, auditors, broker-dealers, and other “gatekeepers” who flourish in the shadows of this less-than-transparent market.”
George Canellos, Director of the SEC’s New York Regional Office, added, “The investing public does not have accurate or adequate information about these securities to use in making informed investment decisions. Nonetheless, stock-touting websites, twitter users, and often anonymous individuals posting to Internet message boards have hyped many of these companies, and these promotional campaigns have been followed by spikes in share price and trading volume.”
The 17 companies and their ticker symbols are:
American Pacific Rim Commerce Group (APRM), based in Citra, Fla.
Anywhere MD, Inc. (ANWM), based in Altascadero, Calif.
Calypso Wireless Inc. (CLYW), based in Houston.
Cascadia Investments, Inc. (CDIV), based in Tacoma, Wash.
CytoGenix Inc. (CYGX), based in Houston.
Emerging Healthcare Solutions Inc. (EHSI), based in Houston.
Evolution Solar Corp. (EVSO), based in The Woodlands, Texas.
Global Resource Corp. (GBRC), based in Morrisville, N.C.
Go Solar USA Inc. (GSLO), based in New Orleans.
Kore Nutrition Inc. (KORE), based in Henderson, Nev.
Laidlaw Energy Group Inc. (LLEG), based in New York City.
Mind Technologies Inc. (METK), based in Cardiff, Calif.
Montvale Technologies Inc. (IVVI), based in Montvale, N.J.
MSGI Security Solutions Inc. (MSGI), based in New York City.
Prime Star Group Inc. (PSGI), based in Las Vegas, Nev.
Solar Park Initiatives Inc. (SOPV), based in Ponte Verde Beach, Fla.
United States Oil & Gas Corp. (USOG), based in Austin, Texas.
Some examples of the promotions are as follows:
Calypso Wireless Inc. has not filed periodic reports since February 2008, when it filed a report for the period ending Sept. 30, 2007. Despite that, the company’s share price rose from 4 cents on Sept. 21, 2010 to an intra-day high of 17 cents on Sept. 24, 2010. Over the same period, trading volume jumped to nearly six million shares, up from 376,000 shares. On Sept. 24, 2010, a stock-promoting website encouraged investors to continue buying Calypso Wireless shares (PINK: CLYW, CLYW message board), stating, in part, “Over the week, CLYW stock has been running wild … This CLYW stock rush happened just like that, on no company’s news and on old, well known SEC filings, done for the investment community.”
Shares in Kore Nutrition Inc. began to spike on Aug. 31, 2010, following the release of a company-paid research report setting a target price of $10.50. Moreover, on Sept. 1 and 8, 2010, the company issued press releases announcing new distribution agreements to market its energy drinks. The research report and distribution agreement claims were reiterated on numerous stock-promotion websites, touting Kore Nutrition as a “winner.” Kore Nutrition’s quarterly report for the period ending Sept. 30, 2010, filed with the SEC on Nov. 15, 2010, made no mention of the announced distribution agreements.
Montvale Technologies Inc. announced the dissolution of the company on Feb. 12, 2010, and last filed financial statements with the SEC for the third quarter of 2009. The company’s shares have nonetheless continued to trade, and to be promoted. On Dec. 22, 2010, a website recommended a “closer look” at Montvale Technologies, claiming it “has the potential to do very well in the short term.” That day, the share price rose 75 percent from 12 cents to 20 cents, and trading volume soared 500 percent over the prior day.
The Microcap Fraud Working Group is a joint initiative of the SEC’s Division of Enforcement and Office of Compliance Inspections and Examinations. The Working Group is pursuing a strategic approach to combating microcap fraud by focusing on recidivists and insiders, and on the attorneys, auditors, broker-dealers, transfer agents and other gatekeepers that facilitate a large volume of the fraud in this sector. The Working Group is comprised of staff from the SEC’s headquarters in Washington D.C., each of its 11 regional offices, and from the Office of Market Intelligence, Division of Corporation Finance, Division of Risk, Strategy, and Financial Innovation, Office of General Counsel, Division of Trading and Markets, and the Division of Investment Management.”
It is great to see how the SEC is now able to coordinate all its different pieces to go after fraudsters. The microcap world of securities has always been a mystery to me. Perhaps some investors have the knowledge and resources to navigate through the world of microcaps and make a profit. For most of us because microcaps are so had to get real information on, investing in microcap securities often feels like gambling. And, whenever someone offers up an investment to make gigantic returns in a hurry it seems that in every case some sort of fraud is being perpetrated.
Wednesday, June 8, 2011
SEC ALLEGES NAME DROPPING FOR PROFIT FRAUD
Using the names of the rich and famous in order to get people to invest in projects or securities is nothing new. Certainly Donald Trump is perhaps the most famous of those dropped names however, others like Ted Turner and Paul Allen would be names to arouse most peoples interest when they are looking at an investment. However,just dropping the names as investors and these celebrities actually being investors is not the same thing in the fraudster world. The SEC has alleged this practice by two individuals. The following excerpt is from the SEC website:
“The Securities and Exchange Commission today charged Ronald Abernathy and Arthur Weiss with orchestrating a $560,000 securities fraud through their company, Sovereign International Group, LLC (“SIG”).
The SEC alleges that Abernathy and Weiss fraudulently obtained investor deposits by telling investors that they would use those funds to trade securities. According to the complaint, they used no investor funds to trade securities. Instead, Abernathy and Weiss misappropriated investor funds for their own personal use. Several investors have demanded that Abernathy and Weiss return their money. With the exception of a limited number of investors who received Ponzi-like payments, Abernathy and Weiss have failed to repay these investors. Instead, they have lulled the investors with various excuses for the delay and by promising repayment in the near future.
According to the SEC’s complaint filed in the Western District of Michigan, Abernathy and Weiss told investors that funds invested by SIG were earning a profit. The SEC further alleges that Abernathy and Weiss did not invest any of those funds and none of the investors earned any actual profits. Additionally, at different times during the scheme, Abernathy and Weiss have told investors that SIG is engaged in the trading of securities, receiving fees in connection with the monetization of multi-million and multi-billion dollar financial instruments, brokering the sale of fine art and, most recently, brokering the sale of and/or refining precious metal ore concentrate. They also falsely told prospective investors that Abernathy was appointed “the director of a highly exclusive group of investors who are purchasing a Major League Baseball Franchise” and that this group of investors includes billionaires Paul Allen (co-founder of Microsoft) and Ted Turner (founder of CNN). Despite their repeated promises of imminent multimillion dollar payouts to SIG from these purported business ventures, SIG, in its entire existence, has not earned any profits, realized any returns or generated any revenue from any business operations. SIG’s only income has consisted of money received from investors.
The SEC’s complaint charges Abernathy, Weiss and SIG with securities fraud in violation of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The Commission seeks permanent injunctive relief, disgorgement of ill-gotten gains with prejudgment interest, and the imposition of monetary penalties against all defendants.”
“The Securities and Exchange Commission today charged Ronald Abernathy and Arthur Weiss with orchestrating a $560,000 securities fraud through their company, Sovereign International Group, LLC (“SIG”).
The SEC alleges that Abernathy and Weiss fraudulently obtained investor deposits by telling investors that they would use those funds to trade securities. According to the complaint, they used no investor funds to trade securities. Instead, Abernathy and Weiss misappropriated investor funds for their own personal use. Several investors have demanded that Abernathy and Weiss return their money. With the exception of a limited number of investors who received Ponzi-like payments, Abernathy and Weiss have failed to repay these investors. Instead, they have lulled the investors with various excuses for the delay and by promising repayment in the near future.
According to the SEC’s complaint filed in the Western District of Michigan, Abernathy and Weiss told investors that funds invested by SIG were earning a profit. The SEC further alleges that Abernathy and Weiss did not invest any of those funds and none of the investors earned any actual profits. Additionally, at different times during the scheme, Abernathy and Weiss have told investors that SIG is engaged in the trading of securities, receiving fees in connection with the monetization of multi-million and multi-billion dollar financial instruments, brokering the sale of fine art and, most recently, brokering the sale of and/or refining precious metal ore concentrate. They also falsely told prospective investors that Abernathy was appointed “the director of a highly exclusive group of investors who are purchasing a Major League Baseball Franchise” and that this group of investors includes billionaires Paul Allen (co-founder of Microsoft) and Ted Turner (founder of CNN). Despite their repeated promises of imminent multimillion dollar payouts to SIG from these purported business ventures, SIG, in its entire existence, has not earned any profits, realized any returns or generated any revenue from any business operations. SIG’s only income has consisted of money received from investors.
The SEC’s complaint charges Abernathy, Weiss and SIG with securities fraud in violation of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The Commission seeks permanent injunctive relief, disgorgement of ill-gotten gains with prejudgment interest, and the imposition of monetary penalties against all defendants.”
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