Updated June 29, 2009
News Items
Supreme Court Might Side With Investors on
Fees
After years of the court system siding with the mutual fund industry on the
discrepancy between retail and institutional mutual fund fees, the case that the Supreme Court will
hear this fall might be a watershed one for investors.
SEC Charges California-Based Hedge Fund Manager for Operating Ponzi-Like
Scheme
The SEC charged a Chula Vista, Calif. resident and two entities he controls for
operating a Ponzi-like scheme through five hedge funds.
SEC Charges Massachusetts-Based Money Manager in Multi-Million Dollar Ponzi
Scheme
The Securities and Exchange Commission today charged a money manager
who lives in Wayland, Mass., for conducting a multi-million dollar Ponzi scheme in which he
promised investors lofty returns as high as 20 percent but instead often stole their money for his
personal use
SEC Proposes Rule Amendments to Strengthen Regulatory Framework for Money
Market Funds
The Securities and Exchange Commission today voted unanimously to
propose rule amendments designed to significantly strengthen the regulatory framework for
money market funds to increase their resilience to economic stresses and reduce the risks of runs
on the funds.
SEC Charges Madoff Solicitors and Feeder With Fraud
The Securities and
Exchange Commission today charged a New York-based broker-dealer and four individuals with
securities fraud, alleging that they collectively raised billions of dollars from investors for Bernard L.
Madoff's Ponzi scheme.
SEC Charges Two Accountants and Antiguan Regulator for Roles in Stanford Ponzi
Scheme
The Securities and Exchange Commission today charged two accountants who
produced bogus financial statements and an Antiguan regulator who took bribes to look the other
way as Robert Allen Stanford conducted an alleged $8 billion Ponzi scheme.
FINRA Requests Comment on Proposed Consolidated FINRA Rule
Governing Investment Company Securities
As part of the process to develop a new
consolidated rulebook (the Consolidated FINRA Rulebook), FINRA is requesting comment on a
proposed FINRA rule regarding the distribution and sale of investment company securities. The
proposal is based on NASD Rule 2830, subject to certain changes, including proposed new
requirements regarding disclosure of cash compensation.
SEC Charges Former Quest Executives With Fraudulently Concealing Millions of
Dollars of Self-Dealing
The Securities and Exchange Commission today charged two
Oklahoma City residents with securities fraud and other violations for a scheme in which they
misappropriated to themselves millions of dollars from Quest Resource Corporation, Quest
Energy Partners, L.P. and their affiliates while they were executives at the company.
SEC Approval and Effective Date for New Consolidated FINRA
Rules
Following the consolidation of NASD and the member regulation, enforcement and
arbitration functions of NYSE Regulation into FINRA, FINRA established a process to develop a
new consolidated rulebook (Consolidated FINRA Rulebook), which FINRA has discussed in
previous Information Notices. FINRA is proposing new consolidated rules in phases for approval
by the SEC as part of the Consolidated FINRA Rulebook. In April and May 2009, the SEC approved
eight new consolidated FINRA Rules, which will take effect on August 17, 2009.
SEC, DOL Announce Panelists, Agenda for Joint Hearing on Target Date
Funds
The Securities and Exchange Commission and the Department of Labor (DOL)
today announced the agenda and expected panelists for their June 18 joint hearing about target
date funds and other similar investment options.
SEC Halts Ponzi Scheme Run by Convicted Felon Siphoning Investor Funds for Sports
Talk Venture
The Securities and Exchange Commission today obtained a court order
halting an $11 million Ponzi scheme in which a Chicago-based promoter who is a convicted felon
promised investors unusually high returns from purported investments in payday advance
stores.
Information for Investors in the Reserve Primary Fund
The Securities and
Exchange Commission today posted information on its Web site for investors in the Reserve
Primary Fund, which "broke the buck" last September when its net asset value fell below $1 per
share. Since then, the fund has withheld a significant amount of money from investors pending the
outcome of numerous lawsuits filed against the fund, its trustees, and other officers and directors
of Reserve entities.
SEC Approves Amendments to NASD Rule 2821 Governing Purchases and
Exchanges of Deferred Variable Annuities
On April 15, 2009, the SEC approved
amendments to NASD Rule 2821 governing purchases and exchanges of deferred variable
annuities. Among other things, the amendments:
-limit the rule's application to recommended transactions;
-change the triggering event that begins the principal review period; and
-clarify various other issues through new supplementary material to the rule.
The rule text is set forth in Attachment A and is effective February 8, 2010.
SEC Obtains Asset Freeze to Halt Nationwide Prime Bank Scheme
The
Securities and Exchange Commission has obtained an emergency court order and asset freeze to
shut down a fraudulent prime bank scheme that promised massive returns to investors
nationwide and then offered a range of administrative excuses when investors had not received
any payments.
FINRA Reminds Firms of Sales Practice Obligations Relating to Leveraged
and Inverse Exchange-Traded Funds
Exchange-traded funds (ETFs) that offer leverage or
that are designed to perform inversely to the index or benchmark they track—or both—are growing
in number and popularity. While such products may be useful in some sophisticated trading
strategies, they are highly complex financial instruments that are typically designed to achieve their
stated objectives on a daily basis. Due to the effects of compounding, their performance over
longer periods of time can differ significantly from their stated daily objective. Therefore, inverse
and leveraged ETFs that are reset daily typically are unsuitable for retail investors who plan to hold
them for longer than one trading session, particularly in volatile markets.
SEC and ASC Charge Alabama Broker-Dealer for Rampant Churning and Extensive
Supervisory Violations
The Securities and Exchange Commission and the Alabama
Securities Commission (ASC) have charged a Birmingham, Ala.-based broker-dealer in
connection with rampant churning of customer accounts, widespread supervisory failures, and
other securities violations that resulted in significant harm to clients and substantial profit to the
firm. Also charged by the SEC and ASC were several of the firm's senior officers and registered
representatives. Churning is a fraudulent practice that occurs when a broker engages in excessive
trading without regard to the customer's investment objectives for the purpose of generating
commissions and other revenue.
Chairman Schapiro Statement on Executive Compensation
Securities and
Exchange Commission Mary Schapiro's statement regarding executive compensation.
SEC Charges New York-Based Investment Adviser for Stealing Client
Funds
The Securities and Exchange Commission today charged an investment adviser
who lives in Armonk, N.Y., for orchestrating a scheme in which he stole more than $6 million in
investor funds for his own personal use, in some instances victimizing clients who were terminally
ill or mentally impaired.
SEC Charges Operators of $80 Million Ponzi Scheme Targeting Korean-
Americans
The Securities and Exchange Commission today charged two California men
and two companies they control for conducting an $80 million Ponzi scheme that targeted Korean-
American investors with false promises of extraordinarily high returns from foreign currency (forex)
trading.
SEC Charges Evergreen for Overvaluing Holdings in Mortgage-Backed Securities and
Making Selective Disclosures to Investors
The Securities and Exchange Commission
today charged Boston-based Evergreen Investment Management Company LLC and an affiliate
with securities law violations for overstating the value of a mutual fund that invested primarily in
mortgage-backed securities, and then only selectively telling shareholders about the fund’s
valuation problems.
SEC Charges Former Countrywide Executives With Fraud
The Securities and
Exchange Commission today charged former Countrywide Financial CEO Angelo Mozilo and two
other former executives with securities fraud for deliberately misleading investors about the
significant credit risks being taken in efforts to build and maintain the company's market share.
Mozilo was additionally charged with insider trading for selling his Countrywide stock based on
non-public information for nearly $140 million in profits.
SEC Office of the Chief Accountant Releases Staff Accounting Bulletin
The
Securities and Exchange Commission's Office of the Chief Accountant today announced the
release of Staff Accounting Bulletin (SAB) No. 112.
SEC Approves Rule Establishing an Interim Pilot Program on Margin
Requirements for Transactions in Credit Default Swaps
The SEC has approved new
FINRA Rule 4240, which establishes an interim pilot program (the Interim Pilot Program) with
respect to margin requirements for certain transactions in credit default swaps (CDS) and
addresses related risk monitoring procedures and guidelines. The Interim Pilot Program's
requirements extend to any transactions in CDS executed by a member (regardless of the type of
account in which the transaction is booked), including those in which the offsetting matching
hedging transactions are effected by the member in CDS contracts that are cleared through the
central counterparty clearing services of the Chicago Mercantile Exchange (CME). The Interim Pilot
Program expires on September 25, 2009.
SEC Finalizes ARS Settlements With Bank of America, RBC, and Deutsche
Bank
The SEC announced finalized settlements with Bank of America, RBC Capital
Markets, and Deutsche Bank to resolve SEC charges that the firms misled investors regarding the
liquidity risks associated with auction rate securities (ARS) that they underwrote, marketed, or
sold.
SEC Announces Creation of Investor Advisory Committee
Securities and
Exchange Commission Chairman Mary Schapiro today announced the formation of an Investor
Advisory Committee to give investors a greater voice in the Commission's work. SEC
Commissioner Luis A. Aguilar will serve as the Commission's primary sponsor of the
Committee.
SEC Announces $78 Million Fair Fund Distribution to Harmed Investors in AIM Mutual
Funds
The SEC announced the Fair Fund distribution of more than $78 million to more
than 590,000 investors who were affected by undisclosed market timing in certain AIM mutual
funds.
FINRA Requests Comment on Proposed FINRA Rule Addressing the
Origination and Circulation of Rumors
As part of the process of developing a new,
consolidated rulebook (the Consolidated FINRA Rulebook), FINRA is requesting comment on
proposed FINRA Rule 2030 relating to the origination and circulation of rumors. FINRA initially
sought comment on the proposed rule, which is based on FINRA Rule 6140 and Incorporated
NYSE Rule 435(5), in Regulatory Notice 08-68. In response to the comments received, FINRA is
proposing substantial changes to proposed FINRA Rule 2030. The proposed changes include
amendments to the general prohibition in Rule 2030 and the proposed reporting requirement, as
well as adopting Supplementary Material to Rule 2030 that will address exceptions for certain
communications, the definition of the term "rumor," additional rules of which member firms should
be aware, and a firm's obligation to adopt written policies and procedures concerning rumors.
FINRA is requesting comment on the proposed revisions to Rule 2030.
SEC Charges 10 Brokers with Fraud for Disguising Risks of Investing in Mortgage-
Backed Securities
The SEC charged 10 brokers with fraud for falsely marketing
investments in derivatives of mortgage-backed securities as safe and suitable for retirees and
others with conservative investment goals. The SEC alleges that the brokers enriched themselves
with millions of dollars in commissions and salaries while the investors suffered millions of
dollars in losses.
FINRA Reminds Firms of Their Obligation to Provide Accurate Information
in Disseminating, or Using Services to Disseminate, Indications of Interest
FINRA is
issuing this Notice to remind firms of their obligation to communicate accurate information when
disseminating, or using services to disseminate, indications of interest to the marketplace.
SEC Halts Foreign Exchange Offering Fraud by College Professor and Houston-Based
Lawyer
The Securities and Exchange Commission has obtained an emergency court
order to freeze the assets of Texas A&M finance professor Robert D. Watson, who resigned from
that position last month, as well as Houston lawyer and certified public accountant Daniel J.
Petroski and two firms. They are charged with defrauding U.S. investors by using forged bank
records to make it appear they were earning spectacular returns in foreign exchange trading.
SEC Takes Steps to Strengthen Existing Rules Governing Securities Trading by
Personnel
Securities and Exchange Commission Chairman Mary Schapiro outlined a
series of measures the agency is taking to strengthen its internal compliance program to guard
against inappropriate employee securities trading.
SEC, DOL Accepting Requests to Participate in Joint Hearing Examining Target Date
Funds
The Securities and Exchange Commission and the Department of Labor
announced today that they are accepting requests to participate in a joint hearing on June 18
examining target date funds. Target date funds and other similar investment options are
investment products that allocate their investments among various asset classes and
automatically shift that allocation to more conservative investments as a "target" date approaches.
This shift in asset allocation, often referred to as a fund’s "glide path," may differ significantly
among funds with the same target date.
SEC Obtains Asset Freeze Of Wisconsin-Based Investment Adviser Charged in
Kickback Scheme
The Securities and Exchange Commission has obtained an
emergency court order to freeze the assets of an Appleton, Wisc.-based investment adviser
charged with engaging in a kickback scheme and other fraudulent conduct involving six
unregistered investment pools it managed.
SEC Charges Florida Trader for Issuing Fake Press Release to Manipulate Stock
Price
The Securities and Exchange Commission today charged a trader from Fort Myers,
Fla., with fraud for writing and disseminating a fake press release that, when reported in the
media, caused a company's stock price to soar and allowed him to reap thousands of dollars in
illicit profits.
SEC Charges Eight Participants in Penny Stock Manipulation Ring
The
Securities and Exchange Commission has charged eight participants in a penny stock
manipulation ring that allegedly pumped the market prices of at least four stocks and generated
more than $6.2 million in illicit profits when they dumped shares on the market.
Securities Industry/Regulatory Council on Continuing Education Issues
Firm Element Advisory Update
This Notice advises firms of the second-quarter 2009
Securities Industry/Regulatory Council on Continuing Education Firm Element Advisory, which
identifies regulatory and sales practice topics that firms should consider in their Firm Element
training plans. Topics updated or added since the prior Advisory are indicated in the document as
such.
SEC Votes to Propose Rule Amendments to Facilitate Rights of Shareholders to
Nominate Directors
The Securities and Exchange Commission today voted to propose a
comprehensive series of rule amendments to facilitate the rights of shareholders to nominate
directors on corporate boards.
SEC Approves New FINRA Rule 5122 Relating to Private Placements of
Securities Issued by a Member Firm or a Control Entity
Effective June 17, 2009, new
FINRA Rule 5122 will require FINRA member firms and associated persons that engage in a
private placement of such firm's securities or those of a control entity (member private offering or
MPO) to comply with certain disclosure and filing requirements and limitations of the use of
proceeds.
SEC Announces $843 Million Fair Fund Distribution to Harmed AIG
Investors
The Securities and Exchange Commission today announced that a federal
court has approved the distribution of more than $843 million to harmed investors in the American
International Group, Inc. from a Fair Fund that the SEC established after the company’s settlement
of an SEC enforcement action for accounting fraud.
SEC to Hold Public Seminar on New Interactive Data Reporting
Requirements
The Securities and Exchange Commission will conduct a public seminar
on June 10 from noon to 3 p.m. ET to help companies and preparers comply with new rules that
require financial reports to be filed using interactive data (XBRL).
SEC Charges Monster Worldwide Inc. for Backdating Scheme
The SEC
charged employment search provider Monster Worldwide, Inc. for its multi-year scheme to secretly
backdate stock options granted to thousands of Monster officers, directors and employees.
Monster agreed to pay a $2.5 million penalty to settle the SEC's charges that the company
defrauded investors by granting backdated, undisclosed "in-the-money" stock options while failing
to record required non-cash charges for option-related compensation expenses.
Proposed Consolidated FINRA Rules Governing Suitability and Know-Your-
Customer Obligations
As part of the process to develop a new consolidated rulebook
(the Consolidated FINRA Rulebook), FINRA is requesting comment on proposed consolidated
FINRA rules governing suitability and know-your-customer (KYC) obligations.
SEC Announces First Distribution From $267 Million Bear Stearns Fair
Fund
The SEC announced the start of a $267 million Fair Fund distribution to mutual
funds and mutual fund shareholders who were harmed by late trading and market timing that
occurred through Bear Stearns, which was charged by the SEC in a 2006 enforcement action.
SEC Brings Emergency Charges Involving Fraudulent Securities Sold on
Craigslist
The SEC charged two New Jersey men with orchestrating a fraudulent scheme
that sold unregistered securities and commingled investor funds with their payroll service used by
New Jersey municipalities and small businesses.
SEC Approves Amendments Expanding the Definition of "TRACE-Eligible
Security"
Effective June 15, 2009, firms must begin reporting transactions in additional
TRACE-eligible securities and otherwise comply with all other FINRA Rule 6700 Series
requirements regarding such securities.
SEC Proposes Rule Amendments to Strengthen Safeguards of Investor Funds
Controlled by Investment Advisers
The SEC has proposed rule amendments to
substantially increase protections for investors who entrust their money to investment advisers.
SEC Approval of Proposed Changes to Forms U4 and U5 and FINRA Rule
8312 (FINRA BrokerCheck Disclosure)
The SEC recently approved amendments to
Forms U4 and U5 as well as FINRA Rule 8312 (FINRA BrokerCheck® Disclosure). The
amendments, among other things, make significant changes to disclosure questions on the
Forms, including the addition of questions about certain regulatory actions. The new regulatory
action questions will enable FINRA and other regulators to identify more readily persons subject to
a particular category of statutory disqualification under the federal securities laws and the FINRA
By-Laws.
SEC Charges Los Angeles-Based "Finder" in Kickback Scheme Involving N.Y. Pension
Fund
The SEC charged Julio Ramirez, Jr., who was formerly affiliated with Los Angeles-
based broker-dealers DAV/Wetherly Financial L.P. and Park Hill Group LLC, in connection with a
multi-million dollar kickback scheme involving New York's largest pension fund.
SEC, DOL to Hold Joint Hearing Examining Target Date Funds
The SEC and
the U.S. Department of Labor will hold a joint one-day hearing on June 18 to explore issues
relating to target date or lifecycle funds and other similar investment options.
Michael Lauer to Pay More Than $62 Million in Hedge Fund Fraud Case
The
SEC announced that Michael Lauer, the head of two Connecticut-based hedge fund advisors, has
been ordered to pay more than $62 million within 15 days as a result of being found liable on SEC
fraud charges last fall.
SEC Charges Investment Adviser for Proxy Voting Rule Violations
The SEC
charged West Palm Beach, Fla.-based INTECH Investment Management LLC and its former chief
operating officer David E. Hurley for violating the SEC's proxy voting rule for investment advisers by
not sufficiently describing its proxy voting policies and procedures and failing to address a material
potential conflict of interest.
