SEC ALLEGES DIAGEO PLC VIOLATED FOREIGN CORRUPT PRACTICES ACT

The following is an excerpt from the SEC website: Washington, D.C., July 27, 2011 — The Securities and Exchange Commission today charged one of the world’s largest producers of premium alcoholic beverages with widespread violations of the Foreign Corrupt Practices Act (FCPA) stemming from more than six years of improper payments to government officials in India, Thailand, and South Korea. The SEC found that London-based Diageo plc paid more than $2.7 million through its subsidiaries to obtain lucrative sales and tax benefits relating to its Johnnie Walker and Windsor Scotch whiskeys, among other brands. Diageo agreed to pay more than $16 million to settle the SEC’s charges. The company also agreed to cease and desist from further violations of the FCPA’s books and records and internal controls provisions. “For years, Diageo’s subsidiaries made hundreds of illicit payments to foreign government officials,” said Scott W. Friestad, Associate Director of the SEC’s Division of Enforcement. “As a result of Diageo’s lax oversight and deficient controls, the subsidiaries routinely used third parties, inflated invoices, and other deceptive devices to disguise the true nature of the payments.” According to the SEC’s order instituting settled administrative proceedings against Diageo, the company made more than $1.7 million in illicit payments to hundreds of government officials in India from 2003 to mid-2009. The officials were responsible for purchasing or authorizing the sale of its beverages in India, and increased sales from these payments yielded more than $11 million in profit for the company. The SEC found that from 2004 to mid-2008, Diageo paid approximately $12,000 per month – totaling nearly $600,000 – to retain the consulting services of a Thai government and political party official. This official lobbied other high-ranking Thai government officials extensively on Diageo’s behalf in connection with pending multi-million dollar tax and customs disputes, contributing to Diageo’s receipt of certain favorable decisions by the Thai government. According to the SEC’s order, Diageo paid 100 million in Korean currency (more than $86,000 in U.S. dollars) to a customs official in South Korea as a reward for his role in the government’s decision to grant Diageo significant tax rebates. Diageo also improperly paid travel and entertainment expenses for South Korean customs and other government officials involved in these tax negotiations. Separately, Diageo routinely made hundreds of gift payments to South Korean military officials in order to obtain and retain liquor business. The SEC’s order found that Diageo and its subsidiaries failed properly to account for these illicit payments in their books and records. Instead, they concealed the payments to government officials by recording them as legitimate expenses for third-party vendors or private customers, or categorizing them in false or overly vague terms or, in some instances, failing to record them at all. Diageo lacked sufficient internal controls to detect and prevent the wrongful payments and improper accounting. The SEC’s order found that Diageo violated Sections 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934. Without admitting or denying the findings, Diageo agreed to cease and desist from further violations and pay $11,306,081 in disgorgement, prejudgment interest of $2,067,739, and a financial penalty of $3 million. Diageo cooperated with the SEC’s investigation and implemented certain remedial measures, including the termination of employees involved in the misconduct and significant enhancements to its FCPA compliance program.”

SEC CHAIRMAN SCHAPRO DISCUSSES SHORT FORM REGISTRATION

The following is an excerpt from the SEC website: Speech by SEC Chairman: Opening Statement at SEC Open Meeting: Item 2 — Security Ratings by Chairman Mary Schapiro U.S. Securities and Exchange Commission Washington, D.C. July 26, 2011 Next, we will consider adopting rules that would replace credit ratings as a condition for companies seeking short-form registration when registering certain securities for public sale. If a company qualifies for short-form registration, it can offer its securities “off the shelf” — which is an expedited process for offering securities. These rules, which were proposed in February, are being considered in light of the requirements of Section 939A of the Dodd-Frank Act — a provision that requires regulators to reduce reliance on credit ratings. Today’s action is part of the Commission’s effort to do just that. In the securities arena, Forms S-3 and F-3 are the “short forms” used by eligible issuers to register securities offerings under the Securities Act. By using these forms, these issuers can rely on other reports they file to satisfy many of the disclosure requirements under the Securities Act. Currently, one of the ways that a company can qualify to use these forms is if they are registering an offering of non-convertible securities that have received an investment grade rating by at least one nationally recognized statistical rating organization (NRSRO). The rules being considered today would eliminate this eligibility test and replace it with four new tests, which the staff will describe shortly. In order to ease transition to the new rules, the rules also would include a temporary, three-year grandfather provision. We received valuable input from commentators on the proposing release, and I believe the amendments we are considering are better as a result. I believe the rules will provide an appropriate and workable alternative to credit ratings for determining whether an issuer should be able to use short form registration and have access to the shelf offering process. With the changes that we are making from the proposal, we expect just about all issuers that currently could rely on the existing test would be able to qualify for the revised forms. In addition, we also are considering rescinding Form F-9 under the Securities Act because we believe that regulatory developments in Canada have rendered that form unnecessary. And we are contemplating changes to several other rules that would be needed in light of the new eligibility criteria." I

SEC COMMISSIONER WALTER MAKES REMARKS REGARDING LARGE TRADER

The following statement is from the SEC website: Speech by SEC Commissioner: Opening Remarks Regarding the Adoption of Large Trader Reporting Requirements by Commissioner Elisse B. Walter U.S. Securities and Exchange Commission Washington, D.C. July 26, 2011 I, too, want to offer my thanks to our staff and, in particular, the individuals within the Office of Market Supervision in the Division of Trading and Markets who developed and finalized the adopting release before us today. As we all know, the Commission has, for some time now, been looking at market structure — finding ways to update our regulations and our tools to more effectively surveil the markets. The new requirements under Rule 13h-1 and Form 13H are intended to strengthen the SEC’s oversight of securities trading activities and to help us to detect potentially manipulative and abusive practices — by identifying large market participants and more effectively collecting information on their trading activity. The rule under consideration today is part of our ongoing efforts to ensure that the markets are fair, transparent and efficient — especially given that rapid technological advances have continued to produce fundamental changes in the securities markets, with new types of market participants, new trading strategies and new products in a trading environment that operates primarily on an automated basis. These changes have enabled significant market participants to use advanced trading methods to trade electronically in large volumes at high speeds. In my view, the need for the Commission to track and monitor large trading activity is even greater today than it was in 1990 when Congress passed the Market Reform Act. After three proposals, I am extremely pleased that today the Commission is considering the large trader rule for adoption. Some have expressed reservations about the rule before us, citing potential costs and the potential regulatory headache in complying with its requirements. But, I believe strongly — and Congress’ 1990 action reflects this — that regulatory agencies, like the Commission, simply cannot function or effectively carry out their missions without obtaining critical information about the activities they regulate and the people who carry out those activities. And, I believe that the new requirements in Rule 13h-1 will be a significant step toward accomplishing that. Specifically, the rule will further the Commission’s understanding of entities or individuals who qualify as large traders and help its analysis of the role they play in the marketplace, including, for example, the impact of their trading activities on the interests of long term investors. I also understand that some are concerned that the rule will impact persons who may not have had any previous contact with the Commission. However, one of the benefits of the rule is just that — it will provide the Commission with a better sense of who the significant market participants are. Having this knowledge will enable the Commission to engage in an open dialogue and discussion with large traders regarding their experience in the marketplace, which could better inform the Commission in future rulemakings and policy decisions. I would also highlight that this rule will be implemented within an existing regulatory framework, which should alleviate any undue burden and also quicken the time frame within which it can be implemented and thus provide the Commission with valuable information. Finally, I believe that another significant improvement under the rule is the timing within which the information must be provided to the Commission upon request. While the current EBS reporting system did not require that broker-dealers provide the information to the Commission by a definitive date, this rule will enable the Commission to have information at the opening of business on the day following a request, or on the same day if the situation warrants it. I think having timely information will be a huge improvement to the Commission in its surveillance and investigative activities. However, as I have said before, the large trader requirements are not a cure-all to the agency’s need for better audit trail information, but rather an additional mechanism that the Commission can use to monitor a particular set of market participants. We need to have an even more complete, timely picture of the markets, and it is my hope that the very near future will find the Commission, as the Chairman stated, in a similar position to consider for adoption the development and implementation of a consolidated audit trail that would capture customer and order event information across the markets. Today, we have an incomplete and possibly inaccurate picture of the markets. As order flow often moves from one marketplace to another, the Commission is not adequately equipped with the surveillance capabilities to gather and analyze cross-market data in a timely manner. In my view, a consolidated audit trail, along with the large trader reporting requirements, would begin to close this gap and enhance the Commission’s ability to perform its job — its market monitoring responsibilities. Thanks once again to the Division of Trading and Markets, and the rest of the staff for your excellent and hard work on this adopting release."

SEC VOTES FRO NEW RULE FOR LARGE TRADER REPORTING REQUIREMENTS

The following is an excerpt from the SEC website: Washington, D.C., July 26, 2011 – The Securities and Exchange Commission today voted unanimously to adopt a new rule establishing large trader reporting requirements to enhance the agency’s ability to identify large market participants, collect information on their trading, and analyze their trading activity. The new rule requires large traders to identify themselves to the SEC, which will then assign each trader a unique identification number. Large traders will provide this number to their broker-dealers, who will be required to maintain transaction records for each large trader and report that information to the SEC upon request. “May 6 dramatically demonstrated the need to enhance the SEC’s ability to quickly and accurately analyze market events. The large trader reporting rule will significantly bolster our ability to oversee the U.S. securities markets in a time when trades can be transacted in milliseconds or faster,” said SEC Chairman Mary L. Schapiro. “This new rule will enable us to promptly and efficiently identify significant market participants and collect data on their trading activity so that we can reconstruct market events, conduct investigations, and bring enforcement actions as appropriate.” The new rule has two primary components: First, it requires large traders to register with the Commission through a new form, Form 13H. Second, it imposes recordkeeping, reporting, and limited monitoring requirements on certain registered broker-dealers through whom large traders execute their transactions. The new rule will be effective 60 days after its publication in the Federal Register."

SEC CHAIRMAN STATEMENT ON LARGE TRADER REPORTING

The following is an excerpt from the SEC website: "Speech by SEC Chairman: Opening Statement at SEC Open Meeting: Item 1 — Large Trader Reporting by Chairman Mary Schapiro U.S. Securities and Exchange Commission Washington, D.C. July 26, 2011 Good morning. This is an Open Meeting of the Securities and Exchange Commission on July 26, 2011. Today, we will consider three items related to Large Trader Reporting, Asset-Backed Securities, and Ratings References. We begin with the new rule that would establish a large trader reporting regime to provide the Commission with better insight into critical segments of market activity. The rule has two primary components: First, it would require large traders to register with the Commission through a new form, Form 13H. Second, it would impose recordkeeping, reporting, and limited monitoring requirements on certain registered broker-dealers through whom large traders execute their transactions. The Commission initially proposed the large trader rule in April 2010. And less than a month later, the importance of this proposal was highlighted when we experienced the “flash crash” of May 6. That day dramatically demonstrated the need to enhance the Commission’s ability to quickly and accurately analyze market events. The fact is we live in a time when trades can be transacted in milliseconds or faster. Large market participants can trade electronically in substantial volumes, at high speed, and in multiple venues. It’s a time of rapid developments in trading technology and strategies. It is for that reason that we launched a comprehensive review of U.S. market structure — a review we initiated months before the flash crash. The large trader rule is one of several measures that grow out of that review — a rule that would enhance the Commission’s ability to obtain information about the most active market participants. This new rule, Rule 13h-1, would significantly bolster our ability to oversee the U.S. securities markets by allowing the Commission to promptly and efficiently identify significant market participants on a cross-market basis, collect data on their trading activity, reconstruct market events, conduct investigations and, as appropriate, bring enforcement matters. The collection of this information is particularly important given the increasingly prominent role played by very active market participants including high-frequency traders. In addition to this large trader rule, the Commission previously proposed establishing a consolidated audit trail for equities and options — a system that would capture customer and order event information for many securities across all markets. I anticipate that a consolidated audit trail would take longer to implement than the rule we are considering today, but it would collect and consolidate much more extensive order and transaction information than that contemplated by the large trader rule. In particular, the large trader regime is much more limited in terms of its scope and objectives. For instance, the technology requirements of this large trader regime should entail much less change than the proposed consolidated audit trail. Further, the large trader rule would leverage existing systems to address the Commission’s compelling near-term need for access to more information about large traders and their trading activities. It also would begin to improve the Commission’s ability to analyze such information. Today’s large trader rule would establish procedures for a large trader to self-identify to the Commission, which will provide important information to the Commission even after a consolidated audit trail is fully implemented. The staff is working on recommendations for Commission consideration with respect to consolidated audit trail, and I am hopeful that we will be able to move forward with that proposal in the very near term. I expect that a consolidated audit trail plan will build on and complement today’s large trader rule, and avoid unnecessary duplication or undue burden on market participants. I would like to thank the staff of the Division of Trading and Markets for their work on this matter, specifically Robert Cook, Gregg Berman, Nathaniel Stankard, James Brigagliano, David Shillman, Richard Holley, Christopher Chow, Gary Rubin, and Kathleen Gray. I also would like to thank staff in the Office of the General Counsel, specifically Mark Cahn, Meridith Mitchell, David Blass, Paula Jenson, and Deborah Flynn as well as staff in the Division of Risk, Strategy, and Financial Innovation including Jennifer Marietta-Westburg, Charles Dale, Adam Glass, and Matthew Kozora. Thanks also to Thomas Sporkin and Mark Lineberry from the Division of Enforcement; Tom Kim, David Orlic, Michele Anderson, and Ann Krauskopf from the Division of Corporation Finance; John Polise from the Office of Compliance Inspections and Examinations; Douglas Scheidt and Stephen Packs from the Division of Investment Management; and Kelly Riley from the Office of International Affairs for their contributions and collaborative efforts. Finally, I would like to thank the other Commissioners and all of our counsels for their work and comments on the rule." Now I'll turn the meeting over to Jamie Brigagliano, Deputy Director of the Division of Trading and Markets, to hear more about the Division’s recommendation."

SEC CHAIRMAN SPEAKS

The following speech is from the SEC website: "Speech by SEC Chairman: Remarks Before the Financial Stability Oversight Council Meeting by Chairman Mary L. Schapiro U.S. Securities and Exchange Commission Washington, D.C. July 18, 2011 After one year, it’s already clear that the Dodd-Frank Act is reshaping the regulatory landscape, filling gaps, reducing systemic risk, and helping to restore confidence in the financial system. And it is beginning to strengthen the financial system so it is less prone to a financial crisis. In the specific area of securities, Dodd-Frank will have a significant impact. It brings hedge fund advisers under the regulatory umbrella, creates a new whistleblower program, establishes an entirely new regime for the over-the-counter derivatives market, enhances the SEC’s authority over credit rating agencies, provides for specialized corporate disclosures, and heightens regulation of asset-backed securities — among other things. Although there is much to do to fully implement the law, we at the SEC have already established a program to incentivize insiders to bring us information about financial fraud. We have already established the process to require hedge fund and other fund advisers to register with the SEC and be subject to our rules. We have already taken advantage of an array of new enforcement tools to pursue fraud. And we have proposed virtually all of the rules necessary to build the regulatory structure for the security-based swaps market. To help fulfill the Act’s promise, the SEC was tasked with writing a large portion of the rules and, over the past year, we have accomplished a great deal. Of the more than 90 mandatory rulemaking provisions, the SEC already has proposed or adopted rules for three-quarters of them (nearly 70). And this does not include additional rules stemming from the dozens of other provisions that give the SEC discretionary rulemaking authority. The rules we’ve proposed and adopted have been strengthened because of the process we’ve put in place. We have increased transparency and made it easier for the public to provide input. And we have forged a collaborative relationship with other federal and international regulators. It is so important that we not forget the harm that the financial crisis inflicted upon our economy and our people, or ignore its lessons. That is one of the reasons it will be critical that all the regulators receive the appropriate funding to be able to fully implement this law and further protect investors — as the law intended. So after one year, I’m pleased with our progress and I’m looking forward to an even busier year to come."