ELECTRONIC STOCK EXCHANGES AND BROKER-DEALER ARE SANCTIONED BY THE SEC

The following is an excerpt from the SEC website: “Washington, D.C., Oct. 13, 2011 — The Securities and Exchange Commission today sanctioned two electronic stock exchanges and a broker-dealer owned by Direct Edge Holdings LLC for violations of U.S. securities laws arising out of weak internal controls that resulted in millions of dollars in trading losses and a systems outage. EDGA Exchange Inc., EDGX Exchange Inc., and their affiliated routing broker Direct Edge ECN LLC – all based in Jersey City, N.J. — agreed to settle cease-and-desist and administrative proceedings without admitting or denying the Commission’s findings. The exchanges and the routing broker, known as DE Route, cooperated with the SEC’s investigation and agreed to be censured and undertake remedial measures, many of which are underway, to correct the deficiencies that led to the systems problems and the violations at the all-electronic exchanges. The SEC’s Division of Enforcement, Division of Trading and Markets, and Office of Compliance Inspections and Examinations coordinated efforts and conducted the investigation jointly. “Direct Edge was required to police not only its members’ conduct, but its own conduct as well,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “Despite those responsibilities, it violated the principal obligations of self-regulatory organizations and national securities exchanges to put the public interest first by ensuring the strength and security of their systems, complying with their own Commission-approved rules, providing for adequate backup and failover systems, and preventing or responding appropriately to significant system outages and failures. The SEC will continue to closely coordinate its oversight, inspection and enforcement activities to ensure that self-regulatory organizations demonstrate the robust compliance necessary to protect investors.” Carlo di Florio, Director of the SEC’s Office of Compliance Inspections and Examinations, added, “Direct Edge has agreed to substantial remedial undertakings that, when fully implemented, will significantly enhance the governance, risk management and compliance culture of these entities as well as information technology systems and controls.” According to the SEC’s order instituting administrative proceedings, in the first incident on Nov. 8, 2010, untested computer code changes resulted in EDGA and EDGX overfilling orders submitted by three members. The unwanted trades involved an estimated 27 million shares in about 1,000 stocks, totaling roughly $773 million. At the exchanges’ instruction, one member traded out of the overfilled shares and submitted a claim to the exchanges for $105,000 of losses. When the other members refused to do likewise, the exchanges assumed and traded out of the overfilled shares through the routing broker’s error account, in violation of their own rules. The Commission also found that in resolving the overfilled trades, which cost the exchanges about $2.1 million, DE Route violated rules on short selling, which involves sales of borrowed shares. DE Route failed to mark the orders as short or mismarked them as long, and failed to locate or document the availability of shares to borrow before selling them short, violating the SEC’s Regulation SHO. According to the SEC’s order, in the second incident on April 13, 2011, an EDGX database administrator inadvertently disabled database connections, disrupting the exchange’s ability to process incoming orders, modifications, and cancellations, and leading several EDGX members to file claims for more than $668,000 in losses. EDGX received internal alerts immediately and got external notifications soon after, including from members seeking to cancel unfilled trades and from numerous trading centers that were bypassing EDGX because it wasn’t responding immediately to incoming orders. EDGX waited approximately 24 minutes after the outage to remove its quotations from public market data, and violated the SEC’s Regulation NMS by failing to immediately identify its quotations as manual quotations. Based on the incidents, the Commission found that EDGA violated Sections 19(b) and 19(g) of the Exchange Act, EDGX violated Sections 19(b) and 19(g) of the Exchange Act and Rule 602(a)(3) thereunder, and DE Route caused violations of Section 19(g) of the Exchange Act and violated Rules 200(g) and 203(b) thereunder. All three consented to an order censuring them and requiring them to cease and desist from further violations of U.S. securities laws and to take remedial efforts to strengthen their information technology systems and controls and compliance procedures. After the incidents, the exchanges and DE Route voluntarily began to put substantial remedial measures in place. A comprehensive remediation plan submitted by the exchanges to the SEC staff requires the exchanges to: Enhance their policies and procedures for systems development and maintenance. Implement an enterprise risk management framework and information security program, including the hiring of an information security director, and enhancing their information technology control framework and underlying controls. Hire a corporate training director to train employees about U.S. securities laws and the exchanges’ policies and procedures. Retain outside counsel to review the circumstances leading to the two systems incidents at the exchanges. Hire a chief compliance officer whose responsibilities include implementing policies and procedures reasonably designed to ensure that respondents fulfill their regulatory and compliance obligations. EDGA, EDGX and DE Route also agreed to spend sufficient funds to put the remediation plan into effect, including the retention of outside counsel or other outside professionals.”

SEC CHAIRMAN MARY SCHAPIRO SPEECH ON REGISTRATION OF SECURITIES FOR BASED SWAP DEALERS AND PARTICIPANTS AT OPEN MEETING

The following excerpt is from the SEC website: “Washington, D.C. October 12, 2011 We will next consider a proposal that would establish registration rules for security-based swap dealers and major security-based swap participants. As with our prior proposals regarding security-based swaps, today’s proposal stems from Title VII of the Dodd-Frank Act. Among other things, the Act authorizes the Commission to put in place a regulatory framework for entities that effect transactions in these derivatives. Registering the major market participants in the largely unregulated security-based swap markets is a critical step toward better protecting investors. Today’s proposal draws from our experience with registration rules regarding broker-dealers — rules that are familiar to many market participants. However, there are some differences. For instance, today’s proposal would require that a senior officer of each security-based swap registrant provide a certification to the Commission. That proposed certification would provide assurance as to the registrant’s financial, operational, and compliance capabilities. We ask a series of detailed questions about this approach, and whether there are other ways to fulfill the purpose of such a certification. Additionally, although the proposed rules and forms are not identical to those proposed by the CFTC for a number of reasons, they are similar in many significant ways. Importantly, both proposed registration regimes would provide for a conditional or phased implementation to allow firms to register even before full compliance is required. In addition, firms that must register with both the CFTC and the SEC would — under the proposal — be able to prepare a shortened registration form. After proposing all of the key rules under Title VII, we intend to seek public comment on a detailed implementation plan that will permit a roll-out of the new securities-based swap requirements in a logical, progressive, and efficient manner, while minimizing unnecessary disruption and costs to the markets. We expect to propose the last of the Title VII rules — rules regarding capital, margin, segregation, and recordkeeping requirements for security-based swaps — in the near future, as well as a proposed approach to address cross-border security-based swap transactions and the regulatory treatment of non-U.S. persons who act in capacities regulated under the Dodd-Frank Act. Before I turn to David Blass from the Division of Trading and Markets to discuss the proposed rules, I would like to thank David, as well as Joe Furey, Bonnie Gauch, Darren Vieira, and Nathaniel Stankard from the Division of Trading and Markets for their hard work on this rulemaking. I also would like to thank Meridith Mitchell, Paula Jenson and Uzma Wahhab from the Office of General Counsel; Jennifer Marietta-Westberg, Scott Bauguess, Jeff Naumann and Charles Dale from the Division of Risk, Strategy, and Financial Innovation; Norm Champ, John Polise, Juanita Bishop-Hamlet, Judy Lee, and Christine Sibille from the Office of Compliance Inspections and Examinations; Jeffrey Cohan in the Office of the Chief Accountant; Jason Anthony in the Division of Enforcement; and Kathleen Kelley in the Office of International Affairs. And finally, of course, I would like to thank my colleagues on the Commission and their counsels for their work and comments on the proposed rules."

SEC ANNOUNCES PANELISTS AND FINAL AGENDA FOR MICROCAP ROUNDTABLE

The following is from the SEC website: “Washington, D.C., Oct. 11, 2011 – The Securities and Exchange Commission today announced the panelists and final agenda for a public roundtable on microcap securities to be held next week. The October 17 roundtable, announced last month, is being sponsored by the SEC’s Microcap Fraud Working Group and will feature three panels discussing key regulatory issues, including anti-money laundering monitoring, compliance challenges, and potential changes to the microcap regulatory framework. The event will begin at 1 p.m. in the multi-purpose room at the SEC’s Washington D.C. headquarters, with public seating on a first-come, first-served basis. The event also can be viewed by live webcast, and will be archived on the website for later viewing. Members of the public who wish to provide their views on the matters to be considered at the roundtable discussion may submit comments through one of the following methods: Electronic Comments Use the SEC’s Internet comment form or send an e-mail to rule-comments@sec.gov and include File Number 4-639 on the subject line. Paper Comments Send paper submissions in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street, N.E., Washington, D.C. 20549-1090, and refer to File Number 4-639. Any comments submitted in connection with the roundtable will be made available to the public. # # # Agenda and Panelists 1:00 p.m. Call to Order and Opening Remarks: Chairman Mary Schapiro and Robert Khuzami, Director of the Division of Enforcement 1:15 p.m. Panel 1 — Compliance Challenges Associated with Microcap Securities Moderator: Peter Curley, Associate Director, Division of Trading and Markets. Panelists: Claire Santaniello — Managing Director and Chief Compliance Officer, Pershing Mihal Nahari — Chief Compliance Officer, The Depository Trust & Clearing Corporation (“DTCC”) Thomas Merritt — Senior Managing Director, Deputy General Counsel and Corporate Secretary, Knight Capital Group Steven Nelson — Chairman, Continental Stock Transfer and Trust Company Marvin Pickholz — Partner, Duane Morris Brian Lebrecht — Founder, The Lebrecht Group, APLC David Chapman — Director, Department of Market Regulation, FINRA 2:15 p.m. Break 2:30 p.m. Panel 2 — Anti-Money Laundering Monitoring Moderator: Sarah Green, Bank Secrecy Act Specialist for the Office of Market Intelligence Panelists: Betty Santangelo — Partner, Schulte Roth & Zabel Susan DeSantis — Managing Director and Deputy Chief Compliance Officer, DTCC Lynne Johnston — US Head of Anti-Money Laundering Compliance, RBC Capital Markets Harold Crawford — Global Director of Anti-Money Laundering & Sanctions, Brown Brothers Harriman & Co. Aaron Fox — Managing Director, IPSA International Inc. Jeff Horowitz — Managing Director and Chief Anti-Money Laundering and OFAC Officer, Pershing Bill Park — Director, FINRA Department of Enforcement 3:30 p.m. Break 3:45 p.m. Panel 3: Potential Changes to the Regulatory Framework Concerning Microcap Securities Moderator: John Polise, Associate Director, Office of Compliance, Inspections and Examinations. Panelists: David Feldman — Partner, Richardson & Patel LLP Susan Merrill — Partner, Bingham McCutchen Chris Stone— Vice President of Equity Products, FINRA Susan Grafton — Of Counsel, Gibson, Dunn & Crutcher Walter Van Dorn — Partner, SNR Denton US LLP R. Cromwell Coulson — President, Chief Executive Officer and Director, OTC Markets Group 4:45 p.m. Concluding Remarks (John Polise) 5:00 p.m. End

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.”