SEC SAYS THERE ARE THREE NEW DEVELOPMENTS REGARDING SHAREHOLDER VOTING

The following excerpt is from the SEC website:
Voting in Annual Shareholder Meetings - What’s New in 2012
03/28/2012
Over the next few months, investors can expect to receive proxy materials for annual shareholder meetings or a related notice advising shareholders how they can access these materials. Shareholder voting typically takes place at the annual shareholder meeting, which most U.S. public companies hold each year between March and June.

There are three new or continuing developments this year:
Shareholder Proposals on Proxy Access. Shareholders may be asked to vote on shareholder proposals to establish procedures to include shareholder director nominations in company proxy materials.
Uninstructed Broker Votes. Restrictions have increased on the circumstances in which brokers may vote on behalf of clients who do not send in voting instructions. That means that brokers will be casting discretionary votes on a narrower range of items this year.

Say-on-pay Votes. Starting last year, most public companies were required to have advisory say-on-pay votes and to choose how often to hold such votes in the future. This year, shareholders will vote again to approve executive compensation at those companies that have chosen to hold annual advisory say-on-pay votes.

Shareholder Proposals on Proxy Access
Typically, the board of directors nominates board candidates, whose names appear in the company’s proxy materials for director elections. Shareholders do not have an automatic right to have their own director nominees included in these proxy materials. Where shareholders do have this ability, the names of director candidates nominated by qualified shareholders appear in the proxy materials alongside the names of the candidates nominated by the board of directors. This process gives shareholders direct access to the proxy materials for nominating directors and is often called “proxy access.”
This year, as a result of amendments to the shareholder proposal rule, eligible shareholders have the right to have proposals that call for the adoption of proxy access procedures included in company proxy materials. (Note that the right to submit shareholder proposals about proxy access procedures is different from the right to nominate director candidates.)Shareholder resolutions on proxy access may either be advisory or binding, and investors have filed both kinds this year. An advisory resolution approved by shareholders leaves the final decision to the company’s board of directors on whether to adopt a proxy access procedure. A binding resolution takes effect once it is approved by shareholders. (Depending on the company, approval may require more than a simple majority of votes.)
Court Decision on Proxy Access Rule

In August 2010, the SEC adopted a new rule that would have required companies to include eligible shareholders’ director nominees in company proxy materials in certain circumstances. The rule was contested in court, however, and in July 2011, the U.S. Court of Appeals for the D.C. Circuit struck down this rule.

Uninstructed Broker Votes
The New York Stock Exchange (NYSE) allows brokers to vote on certain items on behalf of their clients, if the broker has received no voting instructions from those clients within 10 days of the annual meeting. These votes are called uninstructed or discretionary broker votes. Brokers are only allowed to cast uninstructed broker votes on “routine” items, and the scope of routine items has narrowed over the years. This year, the NYSE announced that brokers may no longer cast uninstructed votes on certain corporate governance proposals. These include proposals to de-stagger the board of directors (so that all directors are elected annually), adopt majority voting in the election of directors, eliminate supermajority voting requirements, provide for the use of consents, provide rights to call a special meeting, and override certain types of anti-takeover provisions. Previously, the NYSE had permitted a broker to cast uninstructed votes on these proposals if they had the support of the company’s management.

Two other important restrictions on discretionary broker voting have been in effect since 2010. First, brokers can no longer cast uninstructed votes in the election of directors (except for certain mutual funds). Second, brokers are prohibited from voting uninstructed shares on executive compensation matters, including say-on-pay votes.

As the ability of brokers to vote uninstructed shares shrinks, the importance of shareholder voting grows. If shareholders do not vote, they cannot expect their broker to vote for them on an increasing range of issues.
Say-on-pay Votes

The say-on-pay rules took effect last year for most companies with two exceptions. First, smaller reporting companies have until 2013 to comply. The second exception concerns companies that borrowed money under the Troubled Asset Relief Program (TARP) and have not yet paid it back. TARP companies are required to hold annual say-on-pay votes until they pay back all the money they borrowed from the government, at which time they will become subject to the say-on-pay rules applicable to other companies.
The rules require three non-binding votes on executive compensation:
Say-on-pay Votes. Companies must provide their shareholders with an advisory vote on the compensation of the most highly compensated executives. The votes are non-binding, leaving final decisions on executive compensation to the company and its board of directors. Companies are now required to disclose whether and, if so, how their compensation policies and decisions have taken into account the results of their most recent say-on-pay vote. This disclosure generally appears in the compensation discussion and analysis section of the proxy statement. Shareholders can review this year’s proxy statements to find out how companies have responded to last year’s say-on-pay votes.

Frequency Votes. Companies also were required last year to provide their shareholders with an advisory vote on how often they would like to be presented with the say-on-pay votes—every year, every second year, or every third year. Like say-on-pay votes, frequency votes are non-binding. After each advisory vote on frequency, companies must disclose their decision as to how frequently they will hold advisory say-on-pay votes. Companies would typically provide this disclosure either in a Form 8-K or Form 10-Q, both of which are filed with the SEC. Many companies provide this information shortly after their annual meeting. These forms are publicly available on the Commission’s website
atwww.sec.gov/edgar/searchedgar/webusers.htm. Companies typically file several 8-Ks in a year. Look for those referring to Item 5.07.

Golden Parachute Arrangements. The term, “golden parachute” generally refers to compensation arrangements and understandings with top executive officers in connection with an acquisition, merger or similar transaction. When companies seek shareholder approval of a merger or acquisition, they are required to provide their shareholders with an advisory vote to approve, in the typical scenario, the disclosed golden parachute compensation arrangements between the target company and its own named executive officers or those of the acquiring company. The company is not required to conduct such a vote, however, if the golden parachute disclosures were included in executive compensation disclosures subject to a prior say-on-pay vote.

ALLEGEDLY, GOLD COIN DEALER INVESTED MONEY AT A CASINO

The following excerpt is from the Securities and Exchange Commission website:
March 26, 2012
SEC Charges Operator of Gold Coin Firm with Conducting Fraudulent Securities Offering
The Securities and Exchange Commission today announced that it filed a civil injunctive action against David L. Marion of Minneapolis, Minnesota and his company, International Rarities Holdings, Inc. (“IR Holdings”), accusing them of conducting a fraudulent, unregistered offer and sale of approximately $1 million in securities.

The SEC’s complaint, filed in U.S. District Court in Minneapolis, alleges that from at least November 2008 through July 2009, Marion and IR Holdings raised approximately $1 million from at least 26 investors through the offer and sale of IR Holdings securities. According to the complaint, Marion represented to investors that they were purchasing shares of IR Holdings, which he said was the parent company and 100% owner of International Rarities Corporation (“IR Corp.”). The complaint alleges that IR Corp. is a privately held Minneapolis based gold coin and bullion sales and trading firm that Marion also owned and operated. The complaint further alleges that Marion told investors that their investments were to be used to expand IR Holdings’ business and eventually take it public. According to the complaint, Marion’s representations were false because IR Holdings never owned IR Corp. and thus Marion sold investors shares of a worthless shell company. In addition, the complaint alleges that Marion did not use the investors’ funds to expand IR Holdings’ business and instead diverted the majority of the funds for his own personal use, including for casino gambling.

The SEC’s complaint charges Marion and IR Holdings with violations of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 and Sections 10(b) and 15(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The SEC is seeking a permanent injunction and disgorgement of ill-gotten gains with prejudgment interest, jointly and severally, against Marion and IR Holdings and a civil penalty against Marion.

SEC CHARGES BAY AREA INVESTMENT ADVISER FOR DEFRAUDING INVESTORS WITH BOGUS AUDIT REPORT

The following excerpt is from the U.S. Securities and Exchange Commission website:
March 21, 2012
On March 15, 2012, the Securities and Exchange Commission charged a San Francisco-area investment adviser with defrauding investors by giving them a bogus audit report that embellished the financial performance of the fund in which they were investing.

The SEC alleges that James Michael Murray raised more than $4.5 million from investors in his various funds including Market Neutral Trading LLC (MNT), a purported hedge fund that claimed to invest primarily in domestic equities. Murray provided MNT investors with a report purportedly prepared by independent auditor Jones, Moore & Associates (JMA). However, JMA is not a legitimate accounting firm but rather a shell company that Murray secretly created and controlled. The phony audit report misstated the financial condition and performance of MNT to investors.

The U.S. Attorney’s Office for the Northern District of California also has filed criminal charges against Murray in a complaint unsealed yesterday.

According to the SEC’s complaint filed in federal court in San Francisco, Murray began raising the funds from investors in 2008. The following year, MNT distributed the phony audit report to investors claiming the audit was conducted by a legitimate third-party accounting firm. However, JMA is not registered or licensed as an accounting firm in Delaware, where it purports to do business. JMA’s website was paid for by a Murray-controlled entity and listed 12 professionals with specific degrees and licenses who supposedly work for JMA. However, at least five of these professionals do not exist, including the two named principals of the firm: “Richard Jones” and “Joseph Moore.” Murray has attempted to open brokerage accounts in the name of JMA, identified himself as JMA’s chief financial officer, and called brokerage firms falsely claiming to be the principal identified on most JMA documents.

The SEC alleges that the bogus audit report provided to investors understated the costs of MNT’s investments and thus overstated the fund’s investment gains by approximately 90 percent. The JMA audit report also overstated MNT’s income by approximately 35 percent, its member capital by approximately 18 percent, and its total assets by approximately 10 percent.

The SEC’s complaint charges Murray with violating Section 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder, which prohibits fraud by investment advisers on investors in a pooled investment vehicle. The complaint seeks injunctive relief and financial penalties from Murray.

The SEC’s investigation was conducted by Karen Kreuzkamp and Robert S. Leach of the San Francisco Regional Office following an examination of MNT conducted by Yvette Panetta and Doreen Piccirillo of the New York Regional Office’s broker-dealer examination program. The SEC’s litigation will be led by Robert L. Mitchell of the San Francisco Regional Office. The SEC thanks the U.S. Attorney’s Office for the Northern District of California and the U.S. Secret Service for their assistance in this matter.

ACCOUNT CHURNING GETS FUTURES TRADER'S REGISTRATIONS REVOKED

The following excerpt is from the CFTC website:
March 21, 2012
CFTC Revokes Registrations of Richard Allan Finger, Jr. and his Company, Black Diamond Futures, LLC Based on Criminal Action
Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced that it filed a Notice of Intent to Revoke the Registrations (Notice) of Richard Allan Finger, Jr. (Finger), a resident of Washington State, and Black Diamond Futures, LLC (Black Diamond), a Washington State limited liability company. The CFTC simultaneously issued an Opinion and Order (Order) settling the action and revoking Black Diamond’s registration with the CFTC as a Commodity Trading Advisor (CTA) and Finger’s registration as its sole Associated Person (AP).

The Notice alleged that, pursuant to the Commodity Exchange Act (CEA), Finger was subject to a statutory disqualification of his registration based upon his plea of guilty to one count of wire fraud, in violation of 18 U.S.C. § 1343 in the criminal action, United States v. Finger, Crim. Case No. 11-mj-424 (W.D. Wash.). The Notice further alleged that Black Diamond was subject to a statutory disqualification pursuant to the CEA because Finger was the sole principal of Black Diamond and Finger’s registration is subject to revocation.

The Notice alleged that in the criminal action, Finger admitted to certain facts, including that:

 From late 2009 to August 2011, Finger was a registered securities representative in Washington State;
 In approximately February 2011, Finger started his own broker-dealer, Black Diamond Securities LLC;

 In order to induce his existing investors to transfer their accounts to his new company, Finger fraudulently inflated the values of their accounts in statements he made to them;
 Thereafter, Finger churned the securities accounts of at least 10 of his investors, despite telling them that he would use a conservative investment strategy. For example, with respect to one investor, Finger’s churning reduced the value of the investor’s account from approximately $1 million to less than $225,000 within two months; and
 In order to conceal his churning, Finger emailed false account statements to his investors.
The CFTC’s Order accepting the offer of settlement in the statutory disqualification proceeding finds that Finger and Black Diamond are subject to statutory disqualification from registration with the CFTC pursuant to Sections 8a(2)(D)(iii) and (iv) and 8a(2)(H) of the CEA, respectively, and revokes their registrations.
CFTC Division of Enforcement staff responsible for this case are Glenn Chernigoff, Alison Wilson, Gretchen L. Lowe, and Vincent A. McGonagle.

SEC CHARGES BIOMETINC., WITH BRIBING DOCTORES IN ARGENTINA, BRAZIL, AND CHINA

The following excerpt is from a Securities and Exchange Commission e-mail:
Washington, D.C., March 26, 2012 — The Securities and Exchange Commission today charged Warsaw, Ind.-based medical device company Biomet Inc. with violating the Foreign Corrupt Practices Act (FCPA) when its subsidiaries and agents bribed public doctors in Argentina, Brazil, and China for nearly a decade to win business.

Biomet, which primarily sells products used by orthopedic surgeons, agreed to pay more than $22 million to settle the SEC’s charges as well as parallel criminal charges announced by the U.S. Department of Justice today. The charges arise from the SEC and DOJ’s ongoing proactive global investigation into medical device companies bribing publicly-employed physicians.

The SEC alleges that Biomet and its four subsidiaries paid bribes from 2000 to August 2008, and employees and managers at all levels of the parent company and the subsidiaries were involved along with the distributors who sold Biomet’s products. Biomet’s compliance and internal audit functions failed to stop the payments to doctors even after learning about the illegal practices.

“Biomet’s misconduct came to light because of the government’s proactive investigation of bribery within the medical device industry,” said Kara Novaco Brockmeyer, Chief of the Enforcement Division’s Foreign Corrupt Practices Act Unit. “A company’s compliance and internal audit should be the first line of defense against corruption, not part of the problem.”

According to the SEC’s complaint filed in federal court in Washington D.C., employees of Biomet Argentina SA paid kickbacks as high as 15 to 20 percent of each sale to publicly-employed doctors in Argentina. Phony invoices were used to justify the payments, and the bribes were falsely recorded as “consulting fees” or “commissions” in Biomet’s books and records. Executives and internal auditors at Biomet’s Indiana headquarters were aware of the payments as early as 2000, but failed to stop it.

The SEC alleges that Biomet’s U.S. subsidiary Biomet International used a distributor to bribe publicly-employed doctors in Brazil by paying them as much as 10 to 20 percent of the value of their medical device purchases. Payments were openly discussed in communications between the distributor, Biomet International employees, and Biomet’s executives and internal auditors in the U.S. For example, a February 2002 internal Biomet memorandum about a limited audit of the distributor’s books stated:

Brazilian Distributor makes payments to surgeons that may be considered as a kickback. These payments are made in cash that allows the surgeon to receive income tax free. …The accounting entry is to increase a prepaid expense account. In the consolidated financials sent to Biomet, these payments were reclassified to expense in the income statement.

According to the SEC’s complaint, two additional subsidiaries – Biomet China and Scandimed AB – sold medical devices through a distributor in China who provided publicly-employed doctors with money and travel in exchange for their purchases of Biomet products. Beginning as early as 2001, the distributor exchanged e-mails with Biomet employees that explicitly described the bribes he was arranging on the company’s behalf. For example, one e-mail stated:

[Doctor] is the department head of [public hospital]. [Doctor] uses about 10 hips and knees a month and it’s on an uptrend, as he told us over dinner a week ago. …Many key surgeons in Shanghai are buddies of his. A kind word on Biomet from him goes a long way for us. Dinner has been set for the evening of the 24th. It will be nice. But dinner aside, I’ve got to send him to Switzerland to visit his daughter.
The SEC alleges that some e-mails described the way that vendors would deliver cash to surgeons upon completion of surgery, and others discussed the amount of payments. The distributor explained in one e-mail that 25 percent in cash would be delivered to a surgeon upon completion of surgery. Biomet sponsored travel for 20 Chinese surgeons in 2007 to Spain, where a substantial part of the trip was devoted to sightseeing and other entertainment.

Biomet consented to the entry of a court order requiring payment of $4,432,998 in disgorgement and $1,142,733 in prejudgment interest. Biomet also is ordered to retain an independent compliance consultant for 18 months to review its FCPA compliance program, and is permanently enjoined from future violations of Sections 30A, 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934. Biomet agreed to pay a $17.28 million fine to settle the criminal charges.

The SEC’s investigation was conducted by Brent S. Mitchell with Tracy L. Price of the Enforcement Division’s FCPA Unit and Reid A. Muoio. The SEC acknowledges the assistance of the U.S. Department of Justice’s Fraud Section and the Federal Bureau of Investigation. The investigation into bribery in the medical device industry is continuing.

TRADER CHARGED WITH MANIPULATION FUTURES PRICES OF PALLADIUM AND PLATINUM

The following excerpt is from the U.S. Commodity Futures Trading Commission website:
CFTC Charges Joseph F. Welsh III, Former MF Global Broker, with Attempted Manipulation of Palladium and Platinum Futures Prices

Washington, DC - The U.S. Commodity Futures Trading Commission (CFTC) today announced that it filed a federal court action in the Southern District of New York chargingJoseph F. Welsh III, of Northport, N.Y., with attempted manipulation of the prices of palladium and platinum futures contracts, including the settlement prices, traded on the New York Mercantile Exchange (NYMEX). The CFTC complaint alleges that Welsh engaged in this conduct from at least June 2006 through May 2008 and specifically on at least 12 separate occasions.

The complaint charges Welsh with directly attempting to manipulate the palladium and platinum futures prices and with aiding and abetting the attempted manipulations of Christopher L. Pia, a former portfolio manager of Moore Capital Management, LLC, a CFTC registrant.

According to the complaint, while working as a broker at MF Global Inc., Welsh employed a manipulative scheme commonly known as “banging the close.”

Welsh allegedly routinely received market-on-close orders to buy palladium and platinum futures contracts from Pia, either directly or through a clerk, and also allegedly understood that Pia wanted to buy at high prices. To accomplish that, Welsh intentionally devised and implemented a trading strategy to attempt to maximize the price impact through trading during the two-minute closing periods of the palladium and platinum futures contracts markets (Closing Periods), the complaint charges.

The CFTC complaint also states that to push prices higher, Welsh routinely withheld entering the market-on-close buy orders until only a few seconds remained in the Closing Periods and thereby caused the orders to be executed within seconds of the close of trading.

The CFTC seeks civil monetary penalties, trading and registration bans and a permanent injunction against further violations of the federal commodities laws, as charged.

The CFTC settled related actions against Moore Capital Management LLC’s successor, Moore Capital Management, LP (Moore), and its affiliates and against Pia. On April 29, 2010, the CFTC issued an order filing and settling charges of attempted manipulation and failure to supervise against Moore and its affiliates. The CFTC’s order imposed a $25 million civil monetary penalty, restricted Moore’s market-on-close trading in the palladium and platinum futures and options markets for two years and restricted Moore’s registration for three years (see CFTC Press Release 5815-10).

On July 25, 2011, the CFTC issued an order filing and settling charges of attempted manipulation against Pia. The CFTC order required Pia, among other things, to pay a $1 million civil monetary penalty and permanently bans him from trading during the closing periods for all CFTC-regulated products and permanently bans him from trading CFTC regulated products in palladium and platinum (see CFTC News Release 6079-11).

The CFTC thanks the CME Group, the parent company of the NYMEX, for its assistance.
CFTC Division of Enforcement staff responsible for this case are Melanie Bates, Kara Mucha, James A. Garcia, August A. Imholtz III, Kassra Goudarzi, Jeremy Cusimano, Janine Gargiulo, Stephen Obie, Michael Solinsky, Gretchen L. Lowe, and Vincent A. McGonagle.