SEC DISMISSES ACTIONS WHEN CRIMIANAL ALREADY GOING TO PRISON

OCTOBER 12, 2011 The following excerpt is from the SEC website: “Commission Dismisses action against New Hampshire Resident in Connection with Fraudulent Scheme after Sentenced to up to 75 years in Prison. On October 6, 2011, the Honorable Joseph A. DiClerico for the United States District Court for the District of New Hampshire granted the Commission's Motion for Voluntary Dismissal of Defendant Koji Goto and Relief Defendant Shaleen Cassily in an enforcement action the Commission filed in 2003. The Commission moved to dismiss the action after Goto was sentenced to up to 75 years in prison and ordered to pay $3.2 million in restitution in a parallel state criminal proceeding, was found incompetent by a court to face further trials, and had all of his assets liquidated and distributed through a bankruptcy proceeding. The Commission originally filed its action against Goto on November 14, 2003, alleging that Goto misappropriated more than $5 million of investor funds by falsely stating that the money would be invested in a Boston-based hedge fund and in a food services business. Instead of investing the funds in the businesses he purported to represent, Goto diverted investor funds to his own bank accounts for his own personal gain. Cassily, who was then Goto's wife, was named as a relief defendant in the Commission's action based on her alleged receipt of some proceeds of Goto's fraud. On November 14, 2003, the U.S. District Court issued a temporary restraining order that, among other things froze defendant Goto's and relief defendant Cassily's assets. On December 3, 2003, the District Court issued a preliminary injunction and asset freeze against Goto and Cassily. The asset freeze was modified by the court on September 13, 2004 to allow two creditors to conduct a foreclosure sale of Goto's house. In a related criminal case, a New Hampshire state grand jury indicted Goto on 68 counts for his role in several fraudulent schemes. From December 1994 until November 2001, Goto had been employed in Concord, New Hampshire by subsidiaries of the John Hancock Financial Services Co., including Signator Investors, Inc., a registered investment adviser and broker-dealer, and Hancock- related insurance agencies as both a registered representative and licensed insurance broker. The indictment charged that Goto committed theft by misapplication of property, theft by deception, criminal solicitation, unlawful securities practice, and witness tampering. The case was filed in New Hampshire Superior Court and is entitled State of New Hampshire v. Koji Goto, (Docket #04-S-0492-0559) (Superior Court, Hillsborough County-North). Among other things, the indictment charged that Goto, beginning in June 1999 and continuing until March 2002, successfully solicited certain individuals to invest their money in purported Hancock investments. According to the indictment, Goto then gained control over that money, but never invested it with Hancock. Instead, Goto stole approximately $3.2 million from his purported Hancock clients. For purposes of trial the New Hampshire state court segregated the charges into five separate schemes including the two schemes alleged in the Commission's Complaint as well as the scheme involving the purported Hancock investments. On September 27, 2004, Goto was found guilty by a jury in the criminal action of the 23 counts concerning the purported Hancock investments. The verdict found Goto guilty of: (a) nine counts of theft by deception in violation of New Hampshire Revised Statutes Annotated ("RSA") 637:4; (b) one count of theft by misapplication in violation of RSA 637:10; and (c) 13 counts of unlawful securities practice in violation of RSA 421-B:6. On March 22, 2006, Goto was sentenced on the 23 guilty verdicts to 25 to 75 years in prison and ordered to pay $3.2 million in restitution. Subsequent to trial, the New Hampshire state court found Goto incompetent to stand trial on the remaining charges. On December 9, 2004, based on Goto's criminal conviction, the Commission instituted public administrative proceedings against Goto pursuant to Section 15(b) of the Securities Exchange Act of 1934 and Section 203(f) of the Investment Advisers Act of 1940 based on his criminal conviction. On March 21, 2005, Goto was permanently barred from association with any broker, dealer, and investment adviser. On October 20, 2004 Goto filed for bankruptcy, which was resolved as a fully administered Chapter 7 bankruptcy on April 1, 2011.”

FINAL JUDGMENT FOR FORMER BROCADE COMMUNICATIONS SYSTEMS CEO

The following is an excerpt from the SEC website: "The Securities and Exchange Commission announced that on August 18, 2011, the Honorable Charles R. Breyer, United States District Judge for the Northern District of California, entered Final Judgment as to Gregory L. Reyes, based on his Consent submitted in order to settle the Commission’s action against him. The Final Judgment against Reyes, which he agreed to without admitting or denying the allegations against him, provides that he is enjoined from violating Section 17(a) of the Securities Act of 1933 (“Securities Act”), Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (“Exchange Act”), and Rules 10b-5, 13a-14, 13b2-1, and 13b2-2 thereunder, and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder; orders him to pay disgorgement in the amount of $150,000, plus prejudgment interest thereon in the amount of $145,219.74; orders him to pay a civil penalty in the amount of $550,000; and prohibits him, for ten years, from acting as an officer or director of a public company. The Commission’s complaint alleged that Reyes, the former CEO of Brocade Communications Systems, Inc., a San Jose computer networking company, engaged in a years-long fraudulent stock options backdating scheme."

A FORMER EXECUTIVE AT CHICAGO EXECUTIVE SEARCH FIRM GETS INJUNCTION BY SEC REGARDING INSIDER TRADING

October 11, 2011 The following excerpt is from the SEC website: “The Securities and Exchange Commission today filed a civil injunctive action in the U.S. District Court for the Northern District of Illinois charging M. Jason Hanold, a former managing director at an executive search firm in Chicago, with illegal insider trading in Hewitt Associates stock in advance of the July 12, 2010 public announcement of a merger agreement between Aon and Hewitt Associates. The SEC alleges that on July 7, Hanold bought shares of Hewitt Associates stock after learning of the impending merger from his wife, who was an executive at Aon at the time. He did so despite requests from his wife that he keep this nonpublic information confidential. According to the SEC’s complaint, Hanold’s wife learned on or about July 6, 2010 that Aon and Hewitt Associates had reached a merger agreement and that a public announcement was imminent. Hanold’s wife shared this information with Hanold in a telephone call that evening. Shortly after the call ended, Hanold’s wife sent him two emails in which she requested that he not share this information. Hanold replied, “I won’t, no need. I only wish we bought their stock!!!” The next day, July 7, 2010, Hanold purchased 831 shares of Hewitt Associate’s stock in advance of the July 12, 2010 public announcement of the agreement between Hewitt Associates and Aon. The announcement caused Hewitt Associates’ stock price to increase by more than 32%. Hanold sold all of his shares on July 12, 2010 for a profit of $10,241. Without admitting or denying the allegations in the complaint, except as to jurisdiction, Hanold has consented to entry of a final judgment that permanently enjoins him from violating Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder. Hanold has also consented to pay $20,766 in disgorgement, prejudgment interest and civil penalties. The settlement is subject to approval by the court. James G. O’Keefe conducted the SEC’s investigation in this matter. The Commission acknowledges the assistance of FINRA in this investigation.”

CHICAGO COMPANY CHARGED BY SEC OF DEFRAUDING INVESTORS OF $20 MILLION

The following is an excerpt from the SEC website: On October 11, 2011, the SEC filed a civil enforcement action in the United States District Court for the Northern District of Illinois against Gregory E. Webb and InfrAegis, Inc. Webb, a 64-year-old resident of Arlington Heights, Illinois, is the Chairman, CEO, and President of InfrAegis. InfrAegis is a company based in the Chicago suburb of Elk Grove Village, Illinois and purports to make products for the homeland security market. The SEC’s Complaint charges Webb and InfrAegis with conducting a fraudulent, unregistered offering of InfrAegis stock that raised over $20 million from hundreds of investors across the country. The SEC’s Complaint alleges that, throughout the offering, in written offering materials provided to investors, Webb and InfrAegis made false and misleading claims about InfrAegis’ commercial success, including the existence of contracts for the sale of InfrAegis’ products. For example, according to the SEC’s Complaint, Webb and InfrAegis made false and misleading statements to investors about the existence of lucrative contracts with the City of Chicago and the Washington Metropolitan Area Transit Authority that would result in billions of dollars in revenue for InfrAegis. The SEC also alleges that Webb and InfrAegis made false and misleading claims about the purported sale of a partial stake in InfrAegis for $8.7 billion, which they told investors would result in 3800% to 4000% returns on their investments. According to the Complaint, Webb personally solicited investors during conference calls in which he repeated these false and misleading claims. Based on their conduct, the SEC alleges that Webb and InfrAegis violated Sections 5(a), 5(c), and 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 SEC’s Complaint seeks a permanent injunction and disgorgement, plus prejudgment interest, against Webb and InfrAegis and a civil penalty against Webb.”

ALLEGED FAMILY INSIDER TRADING SCHEME IN AON HEWITT ASSOCIATES MERGER

October 11, 2011 MERGER AND AN ALLEGED INSIDE TRADING SCHEME IN HEWITT ASSOCIATES STOCK The following is an excerpt from the SEC website: “The Securities and Exchange Commission today filed a civil injunctive action in the U.S. District Court for the Northern District of Illinois charging M. Jason Hanold, a former managing director at an executive search firm in Chicago, with illegal insider trading in Hewitt Associates stock in advance of the July 12, 2010 public announcement of a merger agreement between Aon and Hewitt Associates. The SEC alleges that on July 7, Hanold bought shares of Hewitt Associates stock after learning of the impending merger from his wife, who was an executive at Aon at the time. He did so despite requests from his wife that he keep this nonpublic information confidential. According to the SEC’s complaint, Hanold’s wife learned on or about July 6, 2010 that Aon and Hewitt Associates had reached a merger agreement and that a public announcement was imminent. Hanold’s wife shared this information with Hanold in a telephone call that evening. Shortly after the call ended, Hanold’s wife sent him two emails in which she requested that he not share this information. Hanold replied, “I won’t, no need. I only wish we bought their stock!!!” The next day, July 7, 2010, Hanold purchased 831 shares of Hewitt Associate’s stock in advance of the July 12, 2010 public announcement of the agreement between Hewitt Associates and Aon. The announcement caused Hewitt Associates’ stock price to increase by more than 32%. Hanold sold all of his shares on July 12, 2010 for a profit of $10,241. Without admitting or denying the allegations in the complaint, except as to jurisdiction, Hanold has consented to entry of a final judgment that permanently enjoins him from violating Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder. Hanold has also consented to pay $20,766 in disgorgement, prejudgment interest and civil penalties. The settlement is subject to approval by the court. James G. O’Keefe conducted the SEC’s investigation in this matter. The Commission acknowledges the assistance of FINRA in this investigation.”

SPEECH BY MARY SCHAPIRO AT OCTOBER 12, 2011 OPEN MEETING OF THE SEC

The following excerpt is from the SEC website: SEC Chairman Mary Schapiro U.S. Securities and Exchange Commission Washington, D.C. October 12, 2011 "Good morning. This is an open meeting of the U.S. Securities and Exchange Commission on October 12, 2011. The Commission today will consider two proposals stemming from the Dodd-Frank Wall Street Reform and Consumer Protection Act. First, we will consider whether to propose a rule to implement Section 619 of the Dodd-Frank Act — or what we commonly refer to as the Volcker Rule. Second, we will consider whether to propose new rules that would set out the registration process for security-based swap dealers and major security-based swap participants. I would like to thank the U.K. Financial Services Authority and its technical staff as well as the Commission’s technical staff for making it possible for me to participate in this open meeting from London. Although I do not know if this is a first for the Commission, it certainly is a first for me, and I appreciate the effort that has gone into facilitating this transatlantic open meeting to propose these important Dodd-Frank Act rulemakings. * * * We begin with the proposal to implement the Volcker Rule, which generally prohibits certain banking entities from engaging in proprietary trading or sponsoring or investing in a hedge fund or private equity fund. The statute is intended to curb the proprietary interests of commercial banks and their affiliates in order to protect taxpayers and consumers by prohibiting insured depository institutions from engaging in risky proprietary trading. Section 619 is a key component of the Dodd-Frank legislation. Its implementation would be a step forward in reducing conflicts of interests between the self-interests of banking entities and the interests of their customers. The statute is aimed at constraining banking entities’ proprietary trading, protecting the provision of essential financial services and promoting the stability of the U.S. financial system. In drafting this proposal, the Commission worked with our fellow regulators to ensure the rule will be applied consistently across institutions. Indeed, today’s rule is being proposed jointly with the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and eventually the CFTC. This has been an extensive undertaking. Throughout the process of formulating this proposal, the SEC staff worked actively and continuously with the staffs of our fellow regulators in this collaborative effort, marked by more than a year of weekly, if not more frequent, interagency staff conference calls, interagency meetings, and shared drafting. The dedication and collective efforts of this interagency team deserve our thanks. Under the proposed rule, certain banking entities generally would be prohibited from engaging in proprietary trading. This includes banks, bank holding companies and their affiliates — as well as the U.S. operations of foreign banks and bank holding companies and their affiliates, including affiliated broker-dealers and investment advisers. In addition, the proposed rule prevents these entities from circumventing this proprietary trading prohibition in that it restricts these entities from sponsoring or investing in hedge funds or private equity funds. At the same time, the proposed rule — as required by the Dodd-Frank Act — permits certain activities necessary for capital raising and the healthy functioning of our securities markets. These include such things as market-making related activities, risk-mitigating hedging, and underwriting. These otherwise permitted activities are not permitted, however, if they involve material conflicts of interest, high-risk assets or trading strategies, or if they threaten the safety and soundness of banking institutions or U.S. financial stability. Although the proposed rule broadly captures all securities and security-based swap dealer accounts, the proposal seeks to strike an appropriate balance between prohibiting proprietary trading and continuing to permit activities that are consistent with normal course market making, risk-mitigating hedging and underwriting. In addition, the proposed rule implements the Dodd-Frank Act’s prohibition on, as principal, directly or indirectly acquiring and retaining an ownership interest in, or having certain relationships with, a hedge fund or private equity fund. In developing this proposal, we have considered comments received in response to the Financial Stability Oversight Council’s (FSOC) January 2011 study formalizing the FSOC’s findings and recommendations for implementing Section 619, as well as additional comments we have received. That said, we believe it is important to gain additional information, including empirical data, about the potential impacts the proposed rule will have. We ask a number of questions about such impacts in the proposal, and we look forward to receiving comments. Before I turn to David Blass of the Division of Trading and Markets to provide a detailed discussion about the staff’s recommendation, I would like to thank Gregg Berman, David Blass, Catherine McGuire, Josephine Tao, Liz Sandoe, David Bloom, Anthony Kelly, Angela Moudy, Daniel Staroselsky, and Nathaniel Stankard from the Division of Trading and Markets for their incredibly hard work on this. In addition, I would like to thank Robert Plaze, Daniel Kahl, Tram Nguyen, Michael Spratt, and Parisa Haghshenas from the Division of Investment Management for their long hours and hard work devoted to preparing the recommendation before us. I also would like to thank their colleagues in the Division of Corporation Finance: Paula Dubberly, Amy Starr, Katherine Hsu, John Harrington, and David Beaning. In the Division of Enforcement: Charlotte Buford and Jason Anthony. In the Office of the General Counsel: Meridith Mitchell, Lori Price, Paula Jenson, Sara Cortes, and Jill Felker. And in the Division of Risk, Strategy, and Financial Innovation: Jennifer Marrietta-Westberg, Adam Yonce, Chuck Dale, and Rick Bookstaber. In addition, I would like to thank our colleagues at the Board, the CFTC, the FDIC, the OCC, and the Department of the Treasury for their collegiality and thoughtful input in working with our staff to develop the proposal before us. And finally, of course, I would like to thank my colleagues on the Commission and their counsels for their work and comments on the proposal. I will now ask David to provide us with additional details about the staff’s recommendations.”