MORGAN STANLEY INVESTMENT MANAGEMENT AGREES TO PAY $3.3 TO SETTLE FRAUD CHARGES

The following is an excerpt from the SEC website: “Washington, D.C., Nov. 16, 2011 — The Securities and Exchange Commission today charged Morgan Stanley Investment Management (MSIM) with violating securities laws in a fee arrangement that repeatedly charged a fund and its investors for advisory services they weren’t actually receiving from a third party. The SEC’s Enforcement Division Asset Management Unit has been focused on fee arrangements with registered funds. The SEC’s investigation found that MSIM — the primary investment adviser to The Malaysia Fund — represented to investors and the fund’s board of directors that it contracted a Malaysian-based sub-adviser to provide advice, research and assistance to MSIM for the benefit of the fund, which invests in equity securities of Malaysian companies. The sub-adviser did not provide these purported advisory services, yet the fund’s board annually renewed the contract based on MSIM’s representations for more than a decade at a total cost of $1.845 million to investors. MSIM agreed to pay more than $3.3 million to settle the SEC’s charges. The SEC’s Asset Management Unit has an initiative inquiring into the investment advisory contract renewal process and fee arrangements in the fund industry. “We want to take the advisory fee setting process out of the shadows by scrutinizing the role of investment advisers and fund board members in vetting fee arrangements with registered funds,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. According to the SEC’s order instituting the settled administrative proceedings, The Malaysia Fund’s board of directors evaluated and approved the sub-adviser fees each year from 1996 to 2007 based on MSIM’s representations during what’s known as the “15(c) process.” Section 15(c) of the Investment Company Act requires an investment adviser to provide a fund’s board with information that is reasonably necessary to evaluate the terms of any contract whereby a person undertakes regularly to serve as an investment adviser of a registered investment company. “MSIM failed in its duty to provide the fund’s board members with the information they needed to fulfill their significant responsibility of reviewing and approving the sub-adviser’s contract,” said Bruce Karpati, Co-Chief of the SEC Enforcement Division’s Asset Management Unit. “MSIM’s failure undermined the integrity of the board’s oversight process.” According to the SEC’s order, MSIM arranged The Malaysia Fund’s sub-advisory agreement with a subsidiary of AM Bank Group, one of the largest banking groups in Malaysia. Despite the research and advisory agreement stating that the AM Bank Group subsidiary (AMMB) would provide MSIM with “investment advice, research and assistance, as [MSIM] shall from time to time reasonably request,” the SEC found that AMMB merely provided two monthly reports based on publicly available information that MSIM neither requested nor used in its management of the fund. Furthermore, MSIM’s oversight and involvement with AMMB during the relevant time period were wholly inadequate. MSIM had no written procedures specifically governing its oversight of sub-advisers, and did not have a procedure in place for reviewing work done by AMMB. According to the SEC’s order, MSIM also was responsible for preparing and filing the fund’s annual and semi-annual reports to shareholders. The fund’s filings stated that for an advisory fee, AMMB provided MSIM with “investment advice, research and assistance.” Since AMMB was not providing any advisory services, MSIM prepared and filed false information in the annual and semi-annual reports. “Not only did MSIM’s internal controls fail in allowing this purported services arrangement to go on, but the firm repeatedly issued reports to investors that inaccurately represented those services,” said Eric I. Bustillo, Director of the SEC’s Miami Regional Office. “MSIM clearly lost sight of this sub-adviser.” According to the SEC’s order, the fund’s sub-adviser contract with AMMB was terminated in early 2008 after the SEC’s examination staff inquired into the fund’s relationship with the sub-adviser. The SEC’s order finds that MSIM willfully violated Sections 15(c) and 34(b) of the Investment Company Act and Sections 206(2) and (4) of the Investment Advisers Act of 1940, and Rule 206(4)-7 thereunder. Without admitting or denying the SEC’s findings, MSIM agreed to a censure and to cease and desist from committing or causing any violations and any future violations of those provisions. MSIM agreed to repay the fund $1.845 million for the sub-adviser’s fees and pay a $1.5 million penalty. MSIM also agreed to implement policies and procedures specifically governing the Section 15(c) process and its oversight of service providers. The SEC’s case was handled by Chad Alan Earnst, Christine Lynch, and Jessica Weiner, members of the Asset Management Unit in the Miami Regional Office, and Tonya Tullis, staff accountant. Karen Stevenson, Susan Schneider, and Dennis Delaney from the SEC’s Washington D.C. office conducted the related examinations. The SEC acknowledges the assistance of the Securities Commission of Malaysia and the Monetary Authority of Singapore. The SEC’s investigation is continuing.”

FORMER CEO AGREES TO RETURN BONUS MONEY RECEIVED WHILE HIS COMPANY WAS COOKING THE BOOKS

(RARE AND/OR WELL DONE!) The following excerpt is from the SEC website: “Washington, D.C., Nov. 15, 2011 –The Securities and Exchange Commission today announced that the former chief executive officer and chairman of CSK Auto Corporation has agreed to return $2.8 million in bonus compensation and stock profits that he received while the company was committing accounting fraud. Maynard L. Jenkins of Scottsdale, Ariz., was not personally charged by the SEC for the company’s misconduct, however he is still required under Section 304 of the Sarbanes-Oxley Act (SOX) to reimburse CSK Auto for incentive-based compensation and stock sale profits that he received during the company’s fraudulent period. The SEC filed court papers against Jenkins in July 2009 saying he violated the SOX “clawback” provision by failing to reimburse the company. It marked the agency’s first SOX clawback case against an individual who was not alleged to have otherwise violated the securities laws. "CEOs should know that they can be deprived of bonuses or stock profits they received while accounting fraud was occurring on their watch," said Robert Khuzami, Director of the SEC's Division of Enforcement. Rosalind Tyson, Director of the SEC’s Los Angeles Regional Office, added, “Jenkins received incentive-based pay while CSK Auto was fraudulently overstating its income to shareholders. His bonuses and stock profits are now being rightfully returned to the company for the benefit of the shareholders.” The settlement with Jenkins is subject to court approval. Jenkins has agreed to reimburse $2,796,467 to O’Reilly Automotive Inc., which has since acquired CSK Auto. The SEC previously charged four former CSK Auto executives who perpetrated the accounting fraud, and separately charged the company for filing false financial statements for fiscal years 2002 to 2004. The company settled the charges, and the litigation against three of the former executives is continuing (CSK’s former chief operating officer has since died). The U.S. Department of Justice brought a criminal indictment against those same executives, who have pleaded guilty to various charges. CSK Auto recently entered into a non-prosecution agreement with the DOJ in which it agreed to pay a $20.9 million penalty. The SEC’s investigation was conducted by Dabney O’Riordan, Robert Conrrad, Rhoda Chang, Spencer Bendell, and Lorraine Echavarria in the Los Angeles Regional Office. The litigation effort was led by Donald Searles. The SEC thanks the Department of Justice, Federal Bureau of Investigation, Internal Revenue Service, and U.S. Postal Service for their substantial assistance in the investigation.”

INVESTMENT ADVISOR CHARGED WITH COMMITTING WIRE FRAUD

The following excerpt comes from the SEC website: “The Securities and Exchange Commission today announced that the U.S. Attorney for the District of Massachusetts has charged Andrey C. Hicks of Boston, Mass., in a criminal complaint unsealed on Friday, October 28, 2011. Hicks was charged with committing wire fraud, attempting to commit wire fraud, and aiding and abetting wire fraud, in violation of 18 U.S.C. Sections 1343, 1349, and 2. On October 26, 2011, the SEC filed an emergency enforcement action charging Hicks and Locust Offshore Management, LLC, his investment advisory firm, with fraud in connection with misleading prospective investors about their supposed quantitative hedge fund and diverting investor money to the money manager’s personal bank account. The SEC alleges in its complaint that Hicks and his advisory firm made misrepresentations about his education, work experience, and the hedge fund’s auditor, prime broker/custodian, and corporate status when soliciting individuals to invest in the purported hedge fund, called Locust Offshore Fund, Ltd. By making these representations and creating other indicia of legitimacy, the SEC alleged that Hicks may have obtained at least $1.7 million from 10 investors and may have misappropriated at least a portion of these funds for personal expenses. In the Commission’s action, the U.S. District Court in Massachusetts issued a temporary restraining order on October 26 that, among other things, freezes the assets of the money manager, his advisory firm, and the hedge fund. On October 28, 2011, the Court converted the temporary restraining order into a preliminary injunction that will continue the asset freeze and other relief until further order of the Court.”

SEC OPEN MEETING: SEC/CFTC SYTEMIC RISK DATA FORM

“by Chairman Mary Schapiro U.S. Securities and Exchange Commission Washington, D.C. October 26, 2011 Good morning. This is an open meeting of the U.S. Securities and Exchange Commission on October 26, 2011. Today, the Commission will consider adoption of a joint SEC/CFTC form to collect critical systemic risk data about hedge funds and other private funds. This data will assist the Financial Stability Oversight Council (FSOC) in assessing the systemic risk that these funds may pose. This private fund data collection is mandated by the Dodd-Frank Act. The data collection form we are adopting today — termed “Form PF” for “private fund” — was the result of extensive and collaborative consultation with fellow FSOC members as well as coordination with international regulators. As a result, we have produced a document that will address the dramatic lack of private fund information available to regulators today while easing the burden on private fund managers producing the data, so that the same data collection approaches and protocols apply cross-border where appropriate. This private fund data collection initiative follows from the lessons learned during the financial crisis — lessons about the importance of monitoring and reducing the possibility that a sudden shock or failure of a financial institution will cascade through the entire financial system. The Dodd-Frank Act sought to address this issue, in part, by creating the FSOC to carry out this monitoring role and by requiring the SEC to collect information from private fund advisers, to inform the Council in its assessment of systemic risk. Form PF data will give the FSOC new insight into private fund activities and greatly enhance the FSOC’s risk-monitoring mission. Form PF data will be utilized by regulators to assess systemic risk. It will be complemented by the new Form ADV data about private funds, which provides both regulators and the investing public information about a private fund’s size, its managers, and the entities that serve critical “gatekeeper” functions, such as auditors and custodians. “Tiered” Reporting For hedge funds, private equity funds, and liquidity funds, the information required on Form PF would be “tiered” so that we would receive more detailed information from larger private fund advisers, rather than imposing the same reporting requirements for all private funds. In addition, in a change from the proposal, we are adopting a minimum reporting requirement of $150 million so that smaller private fund advisers would not be required to file Form PF at all, in part because these smaller advisers would have a minimal impact on a broad-based systemic risk analysis. While the group of large private fund advisers is relatively small in number, it represents a large majority of private funds’ assets under management. For instance, the rule would require heightened reporting from hedge fund advisers managing at least $1.5 billion in hedge fund assets. And, although this heightened reporting threshold would apply to only about 230 U.S.-based hedge fund advisers, these advisers manage more than an estimated 80 percent of the assets under management. Reporting by Large Private Equity Managers Similarly, SEC staff estimates that approximately 155 U.S.-based private equity fund advisers managing over $2 billion in private equity fund assets would be subject to the heightened private equity reporting. In response to commenters, we have increased the private equity fund manager thresholds to target those advisers that have the most influence over the private equity market. At the same time, however, we believe that we still will receive heightened reporting from managers representing 75 percent of the private equity market. This will provide FSOC members the information they need to monitor the leveraged loan and private equity markets. In addition, in general, the data collection form will require substantially less information from advisers managing large private equity funds than the large hedge fund and liquidity funds advisers. This is because, after consultation with staff representing FSOC members, we believe private equity funds have less potential to pose systemic risks than other types of private funds. Timing and Frequency of Reporting The private fund data collection we are implementing will play an important role in supporting the framework created by the Dodd-Frank Act. It is designed to ensure that regulators have a view into financial market activities of potential systemic importance. At the same time, however, and in consultation with FSOC, we are making several changes at adoption that we believe address issues raised by commenters, while still preserving the utility of the data collection for FSOC. The strongest concerns voiced on the proposal related to the timing and frequency of the reporting. We want the information that will be reported to regulators on Form PF to be useful. It will not be useful if it is rushed or incomplete. As a result, we are extending the filing deadlines from 15 days to 60 days for larger hedge fund advisers. In addition, for smaller advisers and for large private equity advisers, we are extending the deadlines from 90 days to 120 days. We believe data quality will improve and reporting burden will decrease with these changes, but FSOC will still obtain sufficiently timely data. The deadline for private equity fund advisers is designed to allow these advisers to obtain financial statements from their funds’ portfolio companies. In addition, unlike the proposal, large private equity fund managers will only file Form PF once a year, as opposed to the quarterly requirement for large hedge fund and liquidity fund managers. In consultation with FSOC staff, we are adopting this reduced filing frequency for private equity managers because the private equity business model is based on purchasing a select group of companies and working with management to strengthen them over time. Thus, trends emerge more slowly in private equity investing. In addition, we took heed of comments related to the costs that attach to reclassifying, recalculating or reprogramming data and systems for reporting purposes. In fine-tuning Form PF, we have balanced the usefulness that comes from standardization of data reporting, where necessary, with the benefit of relying on advisers’ own internal calculation methodologies where appropriate. Confidentiality I also know that the confidentiality of the information reported on Form PF is very important to those filing the information. The data is sensitive and proprietary and — by Congressional design — non-public. The Dodd-Frank Act contains strong protection for the information filed on Form PF. In addition, we are committed to building the controls necessary to provide appropriate confidentiality and limit the availability of proprietary hedge fund and other private fund information to those who have a regulatory need to know.”

SEC SETTLES WITH FORER CEO OF VERITAS SOFTWARE CORP.

The following excerpt is from the SEC website: “The U.S. Securities and Exchange Commission today announced that, on October 21, 2011, the United States District Court for the Northern District of California entered a settled final judgment against Mark Leslie, the former Chief Executive Officer of Veritas Software Corporation, in SEC v. Mark Leslie, Kenneth E. Lonchar, Paul A. Sallaberry, Michael M. Cully, and Douglas S. Newton, Civil Action No. 07 CV 3444 (JF) (PSG) (N.D. Cal. filed July 2, 2007). The final judgment resolves the Commission's case against Leslie. The Commission's amended complaint alleges that Leslie and the remaining defendants in this action inflated Veritas' reported revenues by approximately $20 million in connection with a software sale to AOL. The complaint further alleges that Leslie failed to disclose material information to Veritas' independent auditors in violation of the federal securities laws. Without admitting or denying the allegations in the complaint, Leslie consented to entry of a final judgment permanently enjoining him from future violations of Rule 13b2-2(a)(2)of the Securities Exchange Act of 1934 and ordering him to pay disgorgement and prejudgment interest of $1,550,000 and a civil penalty of $25,000. Kenneth E. Lonchar and Paul A. Sallaberry remain as defendants in the Commission's action.”

SEC REQUIRES COMPLETE AND ACCURATE DOCUMENTS FROM FINRA

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