FORMER MERCURY INTERACTIVE GENERAL COUNSEL SETTLES SUIT ALLEGING STOCK OPTIONS BACKDATING AND OTHER MISCONDUCT

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
Susan Skaer, former General Counsel of Mercury Interactive Corporation, to be Permanently Enjoined and to Pay Civil Penalties and Disgorgement, and to be Barred from Practicing or Appearing as an Attorney Before the Commission

The Securities and Exchange Commission today settled civil fraud charges against Susan Skaer, the former General Counsel and Secretary of Mercury Interactive Corporation (Mercury), arising from an alleged scheme to backdate stock option grants and from other alleged misconduct.

On May 31, 2007, the Commission charged three other former senior Mercury officers and Skaer with perpetrating a scheme from 1997 to 2005 to award Mercury executives and other employees undisclosed, secret compensation by backdating stock option grants and failing to record hundreds of millions of dollars of compensation expense. The Commission's Complaint also alleged other misconduct by Skaer related to the award of stock options to Mercury executives and employees.

Without admitting or denying the allegations in the Commission's complaint, Skaer consented to the entry of a final judgment permanently enjoining her from violating and/or aiding and abetting violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933, as well as the financial reporting, record-keeping, internal controls, false statements to auditors, and proxy provisions of the federal securities laws. Skaer will pay $628,037 in disgorgement and prejudgment interest, representing the "in-the-money" benefit from her exercise of backdated option grants, and a $225,000 civil penalty. The settlement is subject to the approval of the United States District Court for the Northern District of California.

As part of the settlement, and following the entry of the proposed final judgment, Skaer, without admitting or denying the Commission's findings, has consented to the entry of a Commission order, pursuant to Rule 102(e)(3) of the Commission's Rules of Practice, suspending her from appearing or practicing before the Commission as an attorney.

The settlement with Skaer, if approved, will conclude the litigation. The Commission previously filed settled charges against Mercury and three former outside directors of Mercury. On May 31, 2007, the Commission filed civil fraud charges against Mercury based on the stock option backdating scheme and other fraudulent conduct noted above. Mercury, which was acquired by Hewlett-Packard Company on November 8, 2006, after the alleged misconduct, settled the matter by agreeing to pay a $28 million penalty and to be permanently enjoined. See Litigation Release No. 20136 (May 31, 2007). On September 17, 2008, in a separate action, the Commission filed settled charges against three former outside directors of Mercury alleging that they recklessly approved backdated stock option grants and reviewed and signed public filings that contained materially false and misleading disclosures about the company's stock option grants and company expenses. The outside directors settled the matter by consenting to permanent injunctions and the payment by each director of a $100,000 penalty. See Litigation Release No. 20724 (Sept. 17, 2008). Mercury and the outside directors settled the charges without admitting or denying the allegations in the Commission's complaint. The Commission also previously settled with three of the four senior officers in its contested action. On March 20, 2009, the Commission settled with former Mercury CFO Sharlene Abrams by which she agreed to entry of a permanent injunction against the antifraud and certain other securities law provisions, to pay $2,287,914 in disgorgement which was deemed partially satisfied by payment to Mercury, to pay a $425,000 civil penalty, to be permanently barred from serving as an officer and director of any public company, and to a Commission order barring her from appearing or practicing before the Commission as an accountant. See Litigation Release No. 20964 (March 20, 2009). On February 21, 2013, the Commission settled with former Mercury CEO Amnon Landan and former Mercury CFO Douglas Smith. Landan agreed to entry of a permanent injunction against the antifraud and certain other securities law provisions, to pay $1,252,822 in disgorgement and prejudgment interest, to pay a $1,000,000 civil penalty, to be barred from serving as an officer and director of any public company for five years, and to reimburse Mercury, pursuant to Section 304 of the Sarbanes-Oxley Act, $5,064,678 for cash bonuses and profits from the sale of Mercury stock. Smith agreed to a permanent injunction against future violations of certain of the antifraud provisions, to pay $451,200 in disgorgement satisfied by a prior repayment to Mercury, to pay a $100,000 civil penalty, and to reimburse Mercury, pursuant to Section 304 of the Sarbanes-Oxley Act, $2,814,687 for profits received from the sale of Mercury stock, all but $250,000 of which was deemed satisfied by prior cash repayments and foregoing of rights to exercise vested options to the benefit of Mercury. See Litigation Release No. 22623 (Feb. 21, 2013). Landan, Abrams and Smith each settled without admitting or denying the allegations in the Commission's complaint

ADVISORS AT OPPENHEIMERS & CO. CHARGED WITH MISLEADING INVESTORS

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION  

Washington, D.C., March 11, 2013 — The Securities and Exchange Commission today charged two investment advisers at Oppenheimer & Co. with misleading investors about the valuation policies and performance of a private equity fund they manage.

An SEC investigation found that Oppenheimer Asset Management and Oppenheimer Alternative Investment Management disseminated misleading quarterly reports and marketing materials stating that the fund’s holdings of other private equity funds were valued "based on the underlying managers’ estimated values." However, the portfolio manager of the Oppenheimer fund actually valued the fund’s largest investment at a significant markup to the underlying manager’s estimated value, a change that made the fund’s performance appear significantly better as measured by its internal rate of return.

Oppenheimer agreed to pay more than $2.8 million to settle the SEC’s charges. The Massachusetts Attorney General’s office today announced a related action and additional financial penalty against Oppenheimer.

"Honest disclosure about how investments are valued and how performance is measured is vital to private equity investors," said George S. Canellos, Acting Director of the SEC’s Division of Enforcement. "This action against Oppenheimer for misleadingly writing up the value of illiquid investments is clear warning that the SEC will not tolerate lax disclosure practices in the marketing of private equity funds."

According to the SEC’s order instituting settled administrative proceedings, the Oppenheimer advisers marketed Oppenheimer Global Resource Private Equity Fund I L.P. (OGR) to investors from around October 2009 to June 2010. OGR is a fund that invests in other private equity funds, and it was marketed primarily to pensions, foundations, and endowments as well as high net worth individuals and families.

According to the SEC’s order, OGR’s largest investment — Cartesian Investors-A LLC — was not valued based on the underlying managers’ estimated values. OGR’s portfolio manager himself valued Cartesian at a significant markup to the underlying manager’s estimated value. OAM’s change in valuation methodology resulted in a material increase in OGR’s performance as measured by its internal rate of return, which is a metric commonly used to compare the profitability of various investments. For the quarter ended June 30, 2009, the portfolio manager’s markup of OGR’s Cartesian investment increased the internal rate of return from approximately 3.8 to 38.3 percent.

"Particularly in the current difficult fundraising environment that can incentivize private equity managers to artificially inflate portfolio valuations, firms must implement policies and procedures to ensure that investors receive performance data derived from the disclosed valuation methodology," said Julie M. Riewe, Deputy Chief of the SEC Enforcement Division’s Asset Management Unit. "Oppenheimer failed to implement such procedures and provided investors with misleading information about its valuation policies and performance numbers."

The SEC’s order found that former OAM employees made the following misrepresentations to potential investors:
The increase in Cartesian’s value was due to an increase in Cartesian’s performance when, in fact, the increase was attributable to the portfolio manager’s new valuation method.
A third-party valuation firm used by Cartesian’s underlying manager wrote up the value of Cartesian, which was untrue.
OGR’s underlying funds were audited by independent third-party auditors when, in fact, Cartesian was unaudited.
The SEC’s order also found that Oppenheimer Asset Management’s written policies and procedures were not reasonably designed to ensure that valuations provided to prospective and existing investors were presented in a manner consistent with written representations to investors and prospective investors.

Oppenheimer Asset Management’s conduct violated Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933 and Section 206(4) of the Investment Advisers Act of 1940 and Rules 206(4)-7 and 206(4)-8. Without admitting or denying the findings, Oppenheimer agreed to pay a $617,579 penalty and return $2,269,098 to those who invested in OGR during the time period when the misrepresentations were made. Oppenheimer consented to a censure and agreed to cease and desist from committing or causing any future violations of the securities laws. The firm is required to retain an independent consultant to conduct a review of its valuation policies and procedures.

Oppenheimer will pay an additional penalty of $132,421 to the Commonwealth of Massachusetts in the related action taken by the Massachusetts Attorney General.

The SEC’s investigation, which is continuing, was conducted by Panayiota K. Bougiamas and Igor Rozenblit of the Asset Management Unit and Lisa Knoop. It was supervised by Valerie A. Szczepanik. The SEC acknowledges the assistance of the Massachusetts Attorney General’s office.

DODD-FRANK SWAPS CLEARING RULES HAVE BEGUN

FROM: COMMODITY FUTURES TRADING COMMISSION
CFTC Announces that Mandatory Clearing Begins

Washington, DC – Today, swap dealers, major swap participants and private funds active in the swaps market are required to begin clearing certain index credit default swaps (CDS) and interest rate swaps that they entered into on or after March 11, 2013. The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) amended the Commodity Exchange Act (CEA) to require clearing of certain swaps. The Dodd-Frank Act also requires the Commission to determine whether a swap is required to be cleared by either a Commission-initiated review or a submission from a DCO for the review of a swap, or group, category, type, or class of swap. The clearing requirement determination does not apply to those who are eligible to elect an exception from clearing because they are non-financial entities hedging commercial risk.

"One of the most significant Dodd-Frank reforms begins implementation today," said CFTC Chairman Gary Gensler. "Central clearing lowers the risk of the highly interconnected financial system. It promotes competition in and broadens access to the market by eliminating the need for market participants to individually determine counterparty credit risk, as now clearinghouses stand between buyers and sellers."

As of today, swap dealers and private funds active in the swaps market began clearing certain CDS and interest rate swaps that they entered into on or after March 11. The clearing requirement applies to newly executed swaps, as well as changes in the ownership of a swap. The five swap classes that are required to be cleared include the swaps can be found here: See Related Link.

Market participants electing an exception from mandatory clearing under section 2(h)(7) of the CEA do not have to comply with the reporting requirements for electing the exception until September 9, 2013.

"This week’s implementation of mandatory clearing continues the process of implementing key goals of the Dodd-Frank Act," Chairman Gensler said. "It is an historic change for the markets that will benefit the public and the economy at large. This achievement is a real testament to the dedication and excellence of the CFTC staff working as a team and with other regulators, both domestic and international. I also would like to thank Commissioners Sommers, Chilton, O’Malia and Wetjen for their significant contributions to making the implementation of these reforms now a reality."

MAN SETTLES WITH SEC REGARDING WASH SALES TO MANIIPULATE STOCK PRICES

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
SEC Charges Robert Crane for Market Manipulation

On February 26, 2013, the Securities and Exchange Commission filed a complaint charging Robert Crane, a former registered representative, with manipulating the market in two penny stocks-Argentex Mining Corporation and ERHC Energy Inc. The United States District Court for the Eastern District of Virginia entered the judgment to which Crane consented on March 4, 2013

The Commission's settled action, filed in federal district court for the Eastern District of Virginia, alleges that Crane executed six wash sales in June 2010 to create the false appearance of an active and liquid market for two securities. He placed his orders through the Internet for trades in three accounts at two brokerage firms. His trades resulted in no change of beneficial ownership in the stock he already owned. However, Crane did not profit from his scheme. The complaint alleges violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and the Court's order permanently enjoins Crane from violating those laws. The Court's order also provides for a penny stock bar against Crane. The Commission did not seek a penalty against Crane due to his sworn representations concerning his financial condition.

STATE OF ILLINOIS CHARGED WITH SECURITIES FRAUD

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., March 11, 2013 — The Securities and Exchange Commission today charged the State of Illinois with securities fraud for misleading municipal bond investors about the state’s approach to funding its pension obligations.

An SEC investigation revealed that Illinois failed to inform investors about the impact of problems with its pension funding schedule as the state offered and sold more than $2.2 billion worth of municipal bonds from 2005 to early 2009. Illinois failed to disclose that its statutory plan significantly underfunded the state’s pension obligations and increased the risk to its overall financial condition. The state also misled investors about the effect of changes to its statutory plan.

Illinois, which implemented a number of remedial actions and issued corrective disclosures beginning in 2009, agreed to settle the SEC’s charges.

"Municipal investors are no less entitled to truthful risk disclosures than other investors," said George S. Canellos, Acting Director of the SEC’s Division of Enforcement. "Time after time, Illinois failed to inform its bond investors about the risk to its financial condition posed by the structural underfunding of its pension system."

Elaine Greenberg, Chief of the SEC’s Municipal Securities and Public Pensions Unit, added, "Regardless of the funding methodology they choose, municipal issuers must provide accurate and complete pension disclosures including the effects of material changes to their pension plans. Public pension disclosure by municipal issuers continues to be a top priority of the unit."

According to the SEC’s order instituting settled administrative proceedings against Illinois, the state established a 50-year pension contribution schedule in the Illinois Pension Funding Act that was enacted in 1994. The schedule proved insufficient to cover both the cost of benefits accrued in a current year and a payment to amortize the plans’ unfunded actuarial liability. The statutory plan structurally underfunded the state’s pension obligations and backloaded the majority of pension contributions far into the future. This structure imposed significant stress on the pension systems and the state’s ability to meet its competing obligations – a condition that worsened over time.

The SEC’s order finds that Illinois misled investors about the effect of changes to its funding plan, particularly pension holidays enacted in 2005. Although the state disclosed the pension holidays and other legislative amendments to the plan, Illinois did not disclose the effect of those changes on the contribution schedule and its ability to meet its pension obligations. The state’s misleading disclosures resulted from various institutional failures. As a result, Illinois lacked proper mechanisms to identify and evaluate relevant information about its pension systems into its disclosures. For example, Illinois had not adopted or implemented sufficient controls, policies, or procedures to ensure that material information about the state’s pension plan was assembled and communicated to individuals responsible for bond disclosures. The state also did not adequately train personnel involved in the disclosure process or retain disclosure counsel.

According to the SEC’s order, Illinois took multiple steps beginning in 2009 to correct process deficiencies and enhance its pension disclosures. The state issued significantly improved disclosures in the pension section of its bond offering documents, retained disclosure counsel, and instituted written policies and procedures as well as implemented disclosure controls and training programs. The state designated a disclosure committee to assemble and evaluate pension disclosures. In reaching a settlement, the Commission considered these and other remedial acts by Illinois and its cooperation with SEC staff during the investigation. Without admitting or denying the findings, Illinois consented to the SEC’s order to cease and desist from committing or causing any violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933.

The SEC’s investigation was conducted by Peter K. M. Chan along with Paul M. G. Helms in the Chicago Regional Office and Eric A. Celauro and Sally J. Hewitt in the Municipal Securities and Public Pensions Unit. They were assisted by other specialists in the unit including Joseph O. Chimienti, Creighton Papier, and Jonathan Wilcox.

"PLASMA ENGINE" INVESTMENT SCHEME HALTED BY SEC

FROM: SECURITIES AND EXCHANGE COMMISSION

SEC HALTS "PLASMA ENGINE" INVESTMENT SCHEME OPERATED BY JOHN ROHNER AND HIS NEVADA COMPANIES

The Securities and Exchange Commission today announced an enforcement action previously filed under seal in federal court in Las Vegas. The SEC has obtained an emergency order to halt an investment scheme that has defrauded at least 98 people nationwide out of at least $1.4 million since 2009.

The SEC’s complaint alleges that Nevada resident John P. Rohner and his companies Inteligentry, Ltd., PlasmERG, Inc. and PTP Licensing, Ltd., have been operating a fraudulent investment scheme. Rohner and his companies solicited investors for the scheme by claiming that they have developed, tested and patented an operational "plasma engine" fueled by abundant and inexpensive noble gases (such as helium), which they claim will replace the internal combustion engine. Rohner and his companies claim that the engine is non-polluting and has unlimited uses to generate electricity in homes, businesses, boats, and aircraft. For example, Rohner told at least one investor that one of his plasma engines has been running a generator on a dairy farm for 18 months and he claimed on company websites that the pollution-free engine "can run for over 3 months on a $12 gas fill". As alleged in the complaint, Rohner originally offered securities in Iowa-based PlasmERG, Inc. from 2009 to early 2011, and from May 2011 to the present Rohner has offered securities in Nevada-based Inteligentry, Ltd., using PlasmERG and PTP Licensing as related business entities.

Rohner and his companies lured investors into purchasing stock by claiming that the companies would be worth billions of dollars when the plasma engine is publicly revealed, repeatedly promising to publicly show his operational engine at stockholder meetings and trade shows. However, the claims were and are entirely fictitious. Rohner and his companies have never run an engine fueled by noble gases, nor have they obtained patents relating to the engine or the plasma technology.

Rohner and his companies also made false and misleading statements to investors that Rohner has advanced degrees from the Massachusetts Institute of Technology and Harvard University, and that they have trademarks relating to the purported engine and its plasma process. As alleged in the complaint, these representations are false. Rohner has never attended or obtained degrees from MIT or Harvard, and has never been assigned a trademark related to the engine or its purported technology.

According to the SEC’s complaint, Rohner, Inteligentry, PlasmERG, and PTP Licensing used investor funds to pay Rohner’s personal expenditures as well as business expenses. The complaint alleges that a significant portion of the funds raised from investors was used for personal expenses, including among other things the purchase of a home in Iowa for Rohner and his wife, the purchase of vehicles for Rohner’s family members and Inteligentry employees, the purchase of home goods, and the payment of personal expenses including automobile repair services and insurance, medical services, and meals at restaurants.

None of the defendants charged in the SEC’s enforcement action has ever registered with the SEC to sell securities.

On March 7, 2013, the Honorable Gloria M. Navarro granted the SEC’s request for a temporary restraining order to prevent Rohner, Inteligentry, PlasmERG, and PTP Licensing from further engaging in the issuance, offer, or sale of any security in an unregistered transaction. The Court also granted the SEC’s request for an order freezing the assets of all the defendants, requiring accountings, and prohibiting the destruction or alteration of documents. The Court unsealed the action on March 8, 2013, at the SEC’s request.

The SEC’s complaint alleges that Rohner, Inteligentry, PlasmERG and PTP Licensing violated the antifraud provisions of the federal securities laws and that Rohner, Inteligentry and PlasmERG violated the securities registration provisions of the federal securities laws. Specifically, the complaint alleges Rohner, Inteligentry, and PlasmERG each violated Sections 5(a) and 5(c) of the Securities Act of 1933 (Securities Act), and that Rohner, Inteligentry, PlasmERG and PTP Licensing violated Section 17(a) of the Securities Act and Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder; and that Rohner aided and abetted violations of Securities Act Section 17(a) and Exchange Act Section 10(b) and Rule 10b-5. The SEC seeks permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest thereon, and civil monetary penalties against each defendant, and a bar prohibiting Rohner from serving as an officer or director of any public company.