SEC MOVES TO PROTECT INVESTORS WHILE HELPING TO STIMULATE INVESTMENT UNDER JOBS ACT REQUIREMENT

SEC MOVES TO PROTECT INVESTORS WHILE HELPING TO  STIMULATE INVESTMENT UNDER
SEC Approves JOBS Act Requirement to Lift General Solicitation Ban
Commission Also Adopts Rule to Disqualify Bad Actors from Certain Offerings and Proposes Rules to Enable SEC to Monitor New Market and Bolster Investor Protections

Washington, D.C., July 10, 2013 — The Securities and Exchange Commission today adopted a new rule to implement a JOBS Act requirement to lift the ban on general solicitation or general advertising for certain private securities offerings.
In connection with this new rule, the Commission voted to issue a rule proposal requiring issuers to provide additional information about these securities offerings to better enable the SEC to monitor the market with that ban now lifted. The proposal also provides for additional safeguards as this market changes and new practices develop.

“As we fulfill our mission to facilitate capital formation and maintain fair and efficient markets, the Commission must always focus on strong investor protections,” said Mary Jo White, Chair of the SEC. “We want this new market and the private markets in general to thrive in a safe and efficient manner, and these rules we adopt and propose are designed to facilitate that objective.”
The rule amendments become effective 60 days after publication in the Federal Register. The rule proposal will undergo a 60-day public comment period following its publication in the Federal Register.

FACT SHEET

Eliminating the Prohibition on General Solicitation and General Advertising in Certain Offerings

SEC Open Meeting

July 10, 2013

Background
Current Offering Process

Companies seeking to raise capital through the sale of securities must either register the securities offering with the SEC or rely on an exemption from registration. Most of the exemptions from registration prohibit companies from engaging in general solicitation or general advertising - that is, advertising in newspapers or on the Internet among other things - in connection with securities offerings. Rule 506 of Regulation D is the most widely-used exemption from registration.

In an offering that qualifies for the Rule 506 exemption, an issuer may raise an unlimited amount of capital from an unlimited number of "accredited investors" and up to 35 non-accredited investors. Under SEC rules, accredited investors are individuals who meet certain minimum income or net worth levels, or certain institutions such as trusts, corporations, or charitable organizations that meet certain minimum asset levels.

JOBS Act

In April 2012, Congress passed the Jumpstart Our Business Startups Act (JOBS Act). Section 201(a)(1) of the JOBS Act directs the SEC to remove the prohibition on general solicitation or general advertising for securities offerings relying on Rule 506 provided that sales are limited to accredited investors and an issuer takes reasonable steps to verify that all purchasers of the securities are accredited investors. By requiring the SEC to remove this general solicitation restriction, Congress sought to make it easier for a company to find investors and thereby raise capital.

While issuers will be able to widely solicit and advertise for potential investors, the JOBS Act required the SEC to adopt rules that "require the issuer to take reasonable steps to verify that purchasers of the securities are accredited investors, using such methods as determined by the Commission." In other words, there is no restriction on who an issuer can solicit, but an issuer faces restrictions on who is permitted to purchase its securities.

The law also directed the SEC to amend Rule 144A under the Securities Act, an exemption from registration that applies to the resale of securities to larger institutional investors known as qualified institutional buyers (QIBs). Under current Rule 144A, offers of securities can only be made to QIBs. Under the new rule, Rule 144A is amended so that offers of securities can be made to investors who are not QIBs as long as the securities are sold only to persons whom the seller reasonably believes are QIBs.

2012 Proposal

Last August, in order to comply with the Congressional mandate to implement Section 201(a)(1) of the JOBS Act, the Commission proposed a rule that would remove the general solicitation ban for certain 506 offerings in which sales of securities would be limited to accredited investors and issuers would be required to take reasonable steps to verify such accredited status. After doing so, the Commission received numerous comments, including requests seeking greater clarification on the types of verification that would be considered reasonable under the rule.

Commenters also suggested that the SEC consider measures that they believed would provide additional protections for investors in connection with removing the general solicitation ban. Several of those additional measures identified by these commenters are included in a separate proposal that the Commission approved today.

New Rulemaking

Rule 506

The final rule approved today makes changes to Rule 506 to permit issuers to use general solicitation and general advertising to offer their securities provided that:

The issuer takes reasonable steps to verify that the investors are accredited investors.

All purchasers of the securities fall within one of the categories of persons who are accredited investors under an existing rule (Rule 501 of Regulation D) or the issuer reasonably believes that the investors fall within one of the categories at the time of the sale of the securities.

Under existing Rule 501, a person qualifies as an accredited investor if he or she has either:

An individual net worth or joint net worth with a spouse that exceeds $1 million at the time of the purchase, excluding the value (and any related indebtedness) of a primary residence.

An individual annual income that exceeded $200,000 in each of the two most recent years or a joint annual income with a spouse exceeding $300,000 for those years, and a reasonable expectation of the same income level in the current year.
The determination of the reasonableness of the steps taken to verify an accredited investor is an objective assessment by an issuer. An issuer is required to consider the facts and circumstances of each purchaser and the transaction. Nevertheless, in response to commenters' requests, the final rule provides a non-exclusive list of methods that issuers may use to satisfy the verification requirement for individual investors.

The methods described in the final rule include the following:

Reviewing copies of any IRS form that reports the income of the purchaser and obtaining a written representation that the purchaser will likely continue to earn the necessary income in the current year.

Receiving a written confirmation from a registered broker-dealer, SEC-registered investment adviser, licensed attorney, or certified public accountant that such entity or person has taken reasonable steps to verify the purchaser's accredited status.

The existing provisions of Rule 506 as a separate exemption are not affected by the final rule. Issuers conducting Rule 506 offerings without the use of general solicitation or general advertising can continue to conduct securities offerings in the same manner and aren't subject to the new verification rule.

Rule 144A

Under the final rule, securities sold pursuant to Rule 144A can be offered to persons other than QIBs, including by means of general solicitation, provided that the securities are sold only to persons whom the seller and any person acting on behalf of the seller reasonably believe to be QIBs.

Form D

The final rule amends Form D, which is the notice that issuers must file with the SEC when they sell securities under Regulation D. The revised form adds a separate box for issuers to check if they are claiming the new Rule 506 exemption that would permit general solicitation or general advertising.

What's Next

The rule amendments become effective 60 days after publication in the Federal Register.

THREE CHARGED IN ALLEGED GOLD FUTURES INVESTMENT PONZI SCHEME

FROM: U.S. SECURITIES AND EXCHANG COMMISSION

The Securities and Exchange Commission today announced that it filed an enforcement action on July 5, 2013 against John Fowler, a convicted felon, Jeffrey Fowler, a former Florida public school teacher, and Julianne Chalmers. The SEC charged John Fowler and Jeffrey Fowler with violations of the antifraud provisions of the federal securities laws. The SEC also charged John Fowler and Julianne Chalmers with registration violations.

From January 2011 through November 2011, John Fowler and Jeffrey Fowler raised approximately $4.3 million from 70 unsuspecting investors nationwide through a Ponzi scheme disguised as a gold futures investment program. The program purportedly was affiliated with a prominent New York-based hedge fund manager but actually had no connection to this manager and no investment in gold futures. Chalmers solicited investors to invest in the gold futures program by purchasing promissory notes.

The SEC’s complaint, filed in the United States District Court for the Middle District of Florida, alleges that John Fowler masterminded the Ponzi scheme and made misrepresentations and omissions in connection with the offer and sale of the promissory notes. He solicited at least one prospective investor, falsely claiming that a prominent hedge fund manager was the general partner of the investment program, that investor returns were guaranteed, and that he was a fellow investor. The complaint alleges that he also prepared fake promissory notes and assignments of security, and signed them as trustee of the prominent hedge fund manager. Finally, the complaint alleges that John Fowler misappropriated investor funds and unlawfully sold unregistered securities.

The complaint alleges that John Fowler’s son, Jeffrey Fowler, took steps to make the scheme appear legitimate by forming a Florida corporation with an identical name to the actual New York-based hedge fund manager and opening several bank accounts in this corporate name. Investors deposited their funds into this account and Jeffrey Fowler made purported interest payments to investors from these funds. Jeffrey Fowler also allegedly misappropriated investor funds for personal use.

The SEC’s complaint also alleges that by soliciting investors into the scheme, Chalmers unlawfully acted as an unregistered broker-dealer and sold unregistered securities that did not qualify for an exemption from the SEC’s registration provisions. Chalmers received more than $90,000 of investor proceeds in transaction-based commissions.

The SEC’s enforcement action charges John Fowler with violating Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 (Securities Act) and Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 10b-5(a) and 10b-5(c) thereunder; and Jeffrey Fowler with violating Sections 17(a)(1) and (3) of the Securities Act and Section 10(b) of the Exchange Act and Rules 10b-5(a) and 10b-5(c) thereunder. The action charges Chalmers with violating Sections 5(a) and 5(c) of the Securities Act and Section 15(a) of the Exchange Act. Both John Fowler and Jeffrey Fowler have consented to the entry of judgments, which would enjoin then from violation of the above provisions. These judgments are subject to court approval. The SEC is seeking a permanent injunction, disgorgement, and financial penalties against Chalmers.

The U.S. Attorney’s Office for the Middle District of Florida conducted a parallel investigation of this matter, which resulted in felony convictions against John Fowler and Jeffrey Fowler. Both Fowlers are currently serving prison sentences. U.S. v. John Henley Fowler, 8:12-CR-359-T-35TGW (M.D. Fla. 2012); U.S. v. Jeffrey Robert Fowler, 8:12-CR-358-T-24EAJ (M.D. Fla. 2012).

The SEC’s investigation was conducted by Miami Regional Office enforcement staff Cecilia Danger and Tonya Tullis and supervised by Chad Alan Earnst. The SEC’s litigation will be led by Christine Nestor.

The SEC acknowledges assistance from the U.S. Attorney’s Office for the Middle District of Florida, the United States Secret Service, and the Federal Bureau of Investigation.

TRADER ASSETS FROZEN FOR ALLEGEDLY TRADING IN ADVANCE OF ONYX PHAMACEUTICAL, INC., ANNOUNCEMENT

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION  

Washington, D.C., July 3, 2013 — The Securities and Exchange Commission today obtained an emergency court order to freeze the assets of traders using foreign accounts to reap approximately $4.6 million in potentially illegal profits by trading in advance of the Sunday, June 30, 2013 announcement that Onyx Pharmaceuticals, Inc. had received, but rejected an acquisition offer from Amgen, Inc.

The SEC alleges that unknown traders took risky bets that Onyx's stock price would increase by purchasing call options on June 26, 27 and 28, the three trading days before the announcement. Through quick, cross country coordination between the agency's Los Angeles and New York offices, the SEC took emergency action to freeze the traders' assets before courts closed for the holiday.

"This action demonstrates that the SEC will not hesitate to freeze the assets of suspicious foreign traders when the timing and size of their trades indicate that they were misusing inside information, and use of foreign accounts will not dissuade us," said Michele Wein Layne, Director of the SEC's Los Angeles Regional Office.

According to the SEC's complaint filed in federal court in Manhattan, on June 30, 2013 Onyx announced that it had received, but rejected, an unsolicited proposal from Amgen to acquire all of Onyx's outstanding shares and share equivalents for $120 per share in cash. The Announcement also stated that Onyx's board of directors rejected Amgen's proposal and that Onyx had authorized its financial advisors to contact potential acquirers who may have an interest in a transaction with Onyx. Amgen's $120 per share price offer represented a 38% premium to Onyx's closing share price on Friday June 28, 2013. The complaint further alleges that as a result of the announcement, Onyx's share price increased from a close of $86.82 on over 51% on Monday July 1 compared with the prior trading day's closing price, and that the trading volume of its stock increased by over 900% that day. The complaint alleges that the traders, as a result of these well-timed trades, collectively earned a profit of approximately $4.6 million in just three days.

The SEC alleges that certain unknown traders were in possession of material nonpublic information about the offer to acquire Onyx at a substantial premium over the stock price at the time they made thy purchased Onyx call options, many of which were out-of-the-money, in the three trading days before the announcement. According to the complaint, the timing and size of the trades were highly suspicious because they constituted large increases over the historical volume for those call options purchased.

The emergency court order obtained by the SEC freezes the traders' assets related to the Onyx call options transactions and prohibits the traders from destroying any evidence. The SEC's complaint charges the unknown traders with violating Section 10(b) of the Securities Exchange Act of 1934 and Exchange Act Rule 10b-5. In addition to the emergency relief, the Commission is seeking a final judgment ordering the traders to disgorge their ill-gotten gains with interest, pay financial penalties, and permanently bar them from future violations.

The SEC's expedited investigation, which is continuing has been conducted by Melissia Buckhalter-Honore and Spencer Bendell. The litigation will be led by John Bulgozdy and Sam Puathasnanon of the Los Angeles Office with the assistance of Alexander Vasilescu of the New York Office. The SEC appreciates the assistance of the Options Regulatory Surveillance Authority (ORSA).

SEC SETTLES CHARGES OF EVADING INTERNAL CONTROLS WITH FORMER CFO

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
Former CFO Agrees to Settle Charges of Evading Internal Controls to Pay for Unauthorized Travel and Entertainment Expenses
The Securities and Exchange Commission announced today that Subramanian Krishnan (Krishnan), the former Chief Financial Officer (CFO) of Digi International, Inc. (Digi), has agreed to settle the Commission’s civil action against him. The Commission’s complaint, filed September 28, 2012, in the U.S. District Court for the District of Minnesota, alleges that Krishnan engaged in conduct which resulted in the filing of inaccurate reports and accompanying certifications in Digi’s annual quarterly reports from March 2005 through May 2010. The complaint alleges that Krishnan engaged in a course of conduct, that resulted in corporate funds being used to pay for unauthorized travel and entertainment expenses. Krishnan authorized such expenses for Digi employees, caused the Company to file inaccurate reports, failed to enforce Digi’s internal controls, demonstrated a lack of management integrity, and wrongly certified that Digi’s internal controls were effective.


Simultaneously with the Commission’s complaint, without admitting or denying the allegations in the Commission’s complaint, Krishnan had previously consented to a final judgment permanently enjoining him from future violations of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder. Krishnan is also permanently restrained and enjoined from future violations of Sections 13(a) and 13(b)(5) and Rules 12b-20, 13a-1, 13a-13, 13a-14, 13b2-1 and 13b2-2 thereunder of the Exchange Act and from aiding and abetting violations of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act.

Under today’s announcement, Krishnan consented to the entry of a judgment prohibiting him from acting as an officer or director of a public company for a period of five years following the date of the filing of the Commission’s complaint and imposing a $60,000 civil penalty. Krishnan also has consented to the issuance of a Commission order, pursuant to Rule 102(e)(3) of the Commission’s Rules of Practice, suspending him from appearing or practicing as an accountant before the Commission with the right to apply for reinstatement after five years.

Jennifer Moore, Justin J. Sutherland, and Karen I. Martinez conducted the Commission’s investigation. Daniel J. Wadley and Thomas M. Melton led the litigation.

THREE CHARGED WITH INSIDER TRADING ON DOW CHEMICAL ROHM & HASS ACQUISITION

FROM: U.S. SECURITES AND EXCHANGE COMMISSION
SEC Charges Three with Insider Trading On Confidential Acquisition Negotiations Between Rohm & Haas and Dow


On July 1, 2013, the Securities and Exchange Commission announced that it charged a former officer of The Dow Chemical Company (Dow), his long-time friend, and a broker with insider trading that generated more than $1 million in illicit profits based on confidential information ahead of Dow's acquisition of Rohm & Haas Co. (Rohm).


The SEC's complaint, filed in the U.S. District Court for the Eastern District of Michigan, charges Mack D. Murrell, of Saginaw, Michigan, David A. Teekell, of Tomball, Texas, and Charles W. Adams, of Conroe, Texas with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint also names as a relief defendant Raymond James Financial Services, Inc. (Raymond James) for the purpose of recovering illegal profits in its firm account. Teekell has agreed to settle the SEC's charges and pay approximately $1.1 million in disgorgement, prejudgment interest, and a civil penalty.

The SEC's complaint alleges that Murrell, who was the Vice President of Information Systems for Dow, obtained confidential details about the acquisition of Rohm from his then live-in girlfriend, now wife, who was the administrative assistant to Dow's Chief Financial Officer at the time. Murrell's girlfriend knew about and worked on the pending acquisition. The complaint alleges that the day after learning from his girlfriend of a special Board meeting at which the Rohm acquisition was discussed, Murrell tipped his long-time friend Teekell during a telephone call. Immediately following the telephone call, Teekell called Adams, his broker at Raymond James, and tipped him.

The complaint further alleges that the next business day after learning of the pending acquisition, Teekell and Adams began purchasing common stock and call options in Rohm. In addition to purchasing call options in his own account, Adams purchased stock in two discretionary customer accounts. Teekell's and Adams' purchases continued until the day before the acquisition announcement on July 10, 2008, when the price of Rohm stock jumped 64 percent. Teekell made an illicit profit of $534,526 and Adams and his discretionary customers made illicit profits of $107,043 through the insider trading. Raymond James made illicit profits of $373,497 when Teekell and Adams decided not to keep certain Rohm options that Adams had purchased in Teekell's account.

A call option is a security that derives its value from the underlying common stock of the issuer and gives the purchaser the right to buy the underlying stock at a specific price within a specified period of time. Typically, investors will purchase call options when they believe the price of the stock of the underlying securities is going up. Teekell and Adams invested so heavily in two series of Rohm call options on July 9, 2008 that their investments accounted for over 86 percent and 64 percent of the total options volume for these series on that day.

The complaint seeks a final judgment ordering disgorgement of ill-gotten gains together with prejudgment interest from the defendants and the relief defendant, and permanent injunctions and penalties against the defendants.

Teekell has consented, without admitting or denying the SEC's allegations, to the entry of a final judgment permanently enjoining him from violating Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. Teekell has agreed to pay $534,526 in disgorgement, $105,346 in prejudgment interest, and a penalty of $534,526. The settlement is subject to court approval.

The SEC's investigation was conducted by Philadelphia Regional Office enforcement staff Kingdon Kase and Suzanne C. Abt. The SEC's litigation will be led by John V. Donnelly and G. Jeffrey Boujoukos






 

SEC SUES OIL, GAS PROMOSTERS FOR FRAUD

FROM: SECURITIES AND EXCHANGE COMMISSION
SEC Sues Texas Oil and Gas Promoters for Securities Fraud


On June 28, 2013, the Securities and Exchange Commission charged Matthew Madison and Dwight McGhee, and their Irving, Texas based company Infinity Exploration, LLC, with conducting a fraudulent offering of oil and gas related investments.


Filed in the United States District Court for the Northern District of Texas, the Commission's complaint alleges that, between March and October 2008, Madison and McGhee raised over $2 million from at least 40 investors from the fraudulent offer and sale of interests in Infinity's two oil and gas joint ventures. Infinity's offering materials misled investors into believing that Infinity's ventures would own the leases and control drilling operations. Indeed, Infinity's communications with investors were peppered with references to as "our wells" and "our crew." The Commission alleges that these claims were false, because Infinity's ventures did not actually have direct interests in any oil and gas leases and no direct involvement in operation of any leases. To the contrary, Infinity's ventures merely owned interests in an unaffiliated joint venture, over which Infinity's ventures could exercise no significant control. The complaint alleges that Madison and McGhee intentionally hid this fact from investors. The complaint further alleges that the defendants' offering materials falsely described Madison as experienced and successful in the oil and gas industry and failed to disclose McGhee's 2007 federal felony conviction.

The complaint alleges that Infinity, Madison, McGhee violated Section 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 complaint seeks permanent injunctions, disgorgement of ill-gotten gains plus prejudgment interest and civil penalties against each of the defendants.

The SEC's investigation was conducted by Ronda Blair, Ty Martinez, and Barbara Gunn of SEC's Fort Worth Regional Office. The SEC acknowledges the assistance of the Federal Bureau of Investigation.