NEW SEC RULES ON RESOURCE EXTRACTION PAYMENT DISCLOSURE

FROM:  U.S. DEPARTMENT OF LABOR
FACT SHEET
Disclosing Payments by Issuers Engaged in Resource Extraction
Background
In 2010, Congress passed the Dodd-Frank Act, which directs the Commission to issue rules requiring the disclosure of certain payments made to the federal government or foreign governments by resource extraction issuers – companies engaged in the development of oil, natural gas, or minerals.

In particular, Section 1504 of the Act amends the Securities Exchange Act of 1934 by adding a new section, Section 13(q).

The Rules

Who Must Disclose:

The new rules require a resource extraction issuer to disclose payments made to governments if:

• The issuer is required to file an annual report with the SEC.
• The issuer engages in the commercial development of oil, natural gas, or minerals.

The new disclosure requirements apply to domestic and foreign issuers and to smaller reporting companies that meet the definition of resource extraction issuer.

In addition, the issuer is required to disclose payments made by a subsidiary or another entity controlled by the issuer. A resource extraction issuer needs to make a factual determination as to whether it has control of an entity based on a consideration of all relevant facts and circumstances.

What Must Be Disclosed:

Under the new rules, a resource extraction issuer is required to disclose certain payments made to a foreign government (including subnational governments) or the U.S. government.

Resource extraction issuers need to disclose payments that are:

• Made to further the commercial development of oil, natural gas, or minerals.
• “not de minimis”
• Within the types of payments specified in the rules.

The rules define commercial development of oil, natural gas, or minerals to include exploration, extraction, processing, and export, or the acquisition of a license for any such activity. The rules define “not de minimis” to mean any payment (whether a single payment or a series of related payments) that equals or exceeds $100,000 during the most recent fiscal year.

The types of payments related to commercial development activities that need to be disclosed include:

• Taxes
• Royalties
• Fees (including license fees)
• Production Entitlements
• Bonuses
• Dividends
• Infrastructure Improvements

The new requirements clarify the types of taxes, fees, bonuses, and dividends that are required to be disclosed. These types of payments generally are consistent with the types of payments that the Extractive Industries Transparency Initiative suggests should be disclosed. Congress specifically referenced the EITI in defining “payment” in the law.

The rules require a resource extraction issuer to provide the following information about payments made to further the commercial development of oil, natural gas, or minerals:

• Type and total amount of payments made for each project.
• Type and total amount of payments made to each government.
• Total amounts of the payments, by category.
• Currency used to make the payments.
• Financial period in which the payments were made.
• Business segment of the resource extraction issuer that made the payments.
• The government that received the payments, and the country in which the government is located.
• The project of the resource extraction issuer to which the payments relate.

The new rules leave the term “project” undefined to provide resource extraction issuers flexibility in applying the term to different business contexts. However, the rule release provides some guidance on the Commission’s view of what a project would be.

How It Must Be Disclosed:

The new rules require a resource extraction issuer to disclose the information annually by filing a new form with the SEC (Form SD). The information must be included in an exhibit and electronically tagged using the eXtensible Business Reporting Language (XBRL) format.

When It Must Be Disclosed:

A resource extraction issuer would be required to file the form on the SEC public database EDGAR no later than 150 days after the end of its fiscal year.

A resource extraction issuer would be required to comply with the new rules for fiscal years ending after Sept. 30, 2013. For the first report, most resource extraction issuers may provide a partial report disclosing only those payments made after Sept. 30, 2013.

Statement of SEC Chairman Mary L. Schapiro on Money Market Fund Reform

Statement of SEC Chairman Mary L. Schapiro on Money Market Fund Reform

ALLEGED ILLEGAL SALE OF STOCK SHARES IN THE PUBLIC MARKET

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

　

Washington, D.C., Aug. 22, 2012 – The Securities and Exchange Commission today charged a New York-based firm and its owner with conducting a penny stock scheme in which they bought billions of stock shares from small companies and illegally resold those shares in the public market.

　

The SEC alleges that Edward Bronson and E-Lionheart Associates LLC reaped more than $10 million in unlawful profits from selling shares they bought at deep discounts from approximately 100 penny stock companies. On average, Bronson and E-Lionheart were able to generate sales proceeds that were approximately double the price at which they had acquired the shares. No registration statement was filed or in effect for any of the securities that Bronson and E-Lionheart resold to the investing public, and no valid exemption from the registration requirements of the federal securities laws was available.

　

"By violating the registration provisions of the securities laws and dumping billions of unregistered shares into the over-the-counter market, Bronson deprived investors of important information about the companies in which they were investing," said Andrew M. Calamari, Acting Director of the SEC’s New York Regional Office.

　

According to the SEC’s complaint filed in U.S. District Court for the Southern District of New York, Bronson lives in Ossining, N.Y. E-Lionheart, which also does business under the name Fairhills Capital, is located in White Plains. Acting at Bronson’s direction, E-Lionheart personnel systematically "cold called" penny stock companies quoted on the OTC Link to ask if they were interested in obtaining capital. If the company was interested, E-Lionheart personnel would offer to buy stock in the company at a rate that was deeply discounted from the trading price of the company’s stock at that time. Typically, Bronson and E-Lionheart immediately began reselling the shares to the investing public through a broker within days of receiving the shares from the company.

　

Bronson and E-Lionheart purported to rely on an exemption from registration under Rule 504(b)(1)(iii) of Regulation D, which exempts transactions that are in compliance with certain types of state law exemptions. However, no such state law exemptions were applicable to these transactions. Bronson and E-Lionheart claimed to rely on a Delaware state law registration exemption, but the transactions in fact had little or no connection to the state of Delaware. The particular Delaware state law exemption claimed by Bronson and E-Lionheart is not an exemption that meets the specific requirements of Rule 504(b)(1)(iii). As a result, investors purchasing these shares did not have access to all of the information that a registration statement would have provided, including in many instances important information concerning the issuance of millions of new shares by the company to Bronson and E-Lionheart.

　

The SEC’s complaint charges E-Lionheart and Bronson with violations of the registration provisions of the federal securities laws, and seeks disgorgement of more than $10 million in ill-gotten gains, penalties. The SEC also seeks penny stock bars against E-Lionheart and Bronson. The complaint also names another entity owned and controlled by Bronson – Fairhills Capital Inc. – as a relief defendant for the purpose of recovering the illegal proceeds it received.

　

The SEC’s investigation was conducted in the SEC’s New York Regional Office by Senior Attorney William Edwards and Assistant Regional Director Wendy B. Tepperman. The SEC’s litigation will be led by Senior Trial Counsel Kevin McGrath.

Requiring Disclosure to Increase Transparency Regarding the Sourcing of Conflict Minerals

Requiring Disclosure to Increase Transparency Regarding the Sourcing of Conflict Minerals

SEC SUES PENNY STOCK DISTRIBUTOR

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
SEC Sues New York Penny Stock Distributor
The Commission announced today that on Aug. 14, 2012, it sued Jossef Kahlon, a/k/a/ Yossef Kahlon and TJ Management Group, LLC, of New York, New York, for selling the stock of several penny stock issuers into the public market in violation of the registration provisions of the federal securities laws.

According to the complaint, Kahlon and TJ Management Group, LLC abused and misused a federal securities law to buy hundreds of millions of shares of stock at steep discounts and to quickly resell all of the shares to the public at market rates, generating at least $7.7 million in profit. The SEC alleges that this conduct deprived investors of important business information to which they were legally entitled for at least the following issuers: My Vintage Baby, Inc., Lecere, Corporation, Landstar, Inc., Hard to Treat Disease, Inc., Good Life China Corporation, VIPR Industries, Inc., ChromoCure, Inc., Atlantis Internet Group Corp, Biocentric Energy Holdings, Inc., Skybridge Technology Group, Inc., and RMD Entertainment Group, Inc.

The SEC alleges that, by these activities, Kahlon and TJ Management Group, LLC violated Section 5 of the Securities Act of 1933. The Commission is seeking permanent injunctions, civil penalties, penny stock bars and disgorgement of ill-gotten gains.

NEW CHARGES IN INSIDER TRADING CASE

FROM: SECURITIES AND EXCHANGE COMMISSION
The Securities and Exchange Commission today announced a second round of charges in an insider trading case involving former professional baseball players and the former top executive at a California-based medical eye products company that was the subject of the illegal trading.
　
The SEC brought initial charges in the case last year, accusing former professional baseball player Doug DeCinces and three others of insider trading on confidential information ahead of an acquisition of Advanced Medical Optics Inc. DeCinces and his three tippees made more than $1.7 million in illegal profits, and they agreed to pay more than $3.3 million to settle the SEC’s charges.
　
Now the SEC is charging the source of those illegal tips about the impending transaction – DeCinces’s close friend and neighbor James V. Mazzo, who was the Chairman and CEO of Advanced Medical Optics. The SEC also is charging two others who traded on inside information that DeCinces tipped to them – DeCinces’ former Baltimore Orioles teammate Eddie Murray and another friend David L. Parker, who is a businessman living in Utah.
　
The SEC alleges that Murray made approximately $235,314 in illegal profits after Illinois-based Abbott Laboratories Inc. publicly announced its plan to purchase Advanced Medical Optics through a tender offer. Murray agreed to settle the SEC’s charges by paying $358,151. The SEC’s case continues against Parker and Mazzo, the latter of whom was directly involved in the tender offer and tipped the confidential information to DeCinces along the way.
　
According to the SEC’s complaint filed in U.S. District Court for the Central District of California, the total unlawful profits resulting from Mazzo’s illegal tipping was more than $2.4 million. Once Mazzo began tipping DeCinces with confidential information about the upcoming transaction, DeCinces soon began to purchase Advanced Medical Optics stock in several brokerage accounts. DeCinces bought more and more shares as the deal progressed and as he continued communicating with Mazzo. DeCinces tipped at least five others who traded on the inside information, including Murray, Parker, and the three traders who settled their charges along with DeCinces last year – physical therapist Joseph J. Donohue, real estate lawyer Fred Scott Jackson, and businessman Roger A. Wittenbach.
　
According to the SEC’s complaint, Mazzo and DeCinces had been close friends for quite some time and lived in the same exclusive gated community in Laguna Beach, Calif. They socialized together with their wives, belonging to the same Orange County country club and vacationing together overseas. They also communicated frequently by e-mail and through phone calls. Mazzo invested in the restaurant business of DeCinces’ son, and DeCinces’ daughter provided interior decorating services for Mazzo and his wife. Mazzo was directly involved in the impending Advanced Medical Optics/Abbott transaction from its inception in October 2008. With knowledge of confidential information about the deal and his duty not to disclose it, Mazzo illegally tipped DeCinces, who made significant purchases of Advanced Medical Optics shares on Nov. 5, 2008, and continuing up until and near the time of the public announcement of the acquisition.
　
The SEC alleges that Parker and DeCinces had been friends and business associates at the time of the illegal trading. Between Jan. 6 and Jan. 8, 2009, Parker bought 25,000 shares of Advanced Medical Optics stock on the basis of confidential information received from DeCinces about the impending transaction. Parker made approximately $347,920 when he sold the stock on the same day as the public announcement. Meanwhile on January 7, Murray used all of the available cash in his self-directed brokerage account to purchase 17,000 shares of Advanced Medical Optics stock on the basis of the confidential information that DeCinces communicated to him. Murray sold all of his shares following the public announcement.
　
Murray agreed to settle the charges against him without admitting or denying the SEC’s allegations by consenting to the entry of a final judgment permanently enjoining him from violating Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3 thereunder. Murray agreed to pay disgorgement of $235,314, prejudgment interest of $5,180, and a penalty of $117,657 for a total of $358,151. The settlement is subject to final approval by the court.