Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Thursday, August 28, 2008

SEC Settles Fraud Charges Alleging Real Estate Investment Fraud

The federal district court for the Central District of California recently entered an order permanently enjoining Robert Thomas Fletcher III (Fletcher) from violating the antifraud and registration provisions of the federal securities laws. The SEC's complaint alleged that Fletcher was the chief executive officer, chairman and president of ProVision, a company that purportedly provided continuing education and support to investors through seminars and workshops focusing on real estate investing, stock investing and other wealth-building strategies.  The order against Fletcher also requires him to disgorge $5,000,000, plus prejudgment interest, and pay a civil money penalty of $130,000.  According to the SEC's complaint, ProVision and Fletcher fraudulently raised millions of dollars from investors, which Fletcher used to support his lavish lifestyle.   According to the complaint, ProVision and Fletcher falsely claimed to own or control, or have the ability to acquire, yachts, real property, and millions of tons of a mineral substance called “humate,” which they fraudulently claimed was worth $137,000,000.

August 28, 2008 in SEC Action | Permalink | Comments (0) | TrackBack (0)

SEC Settles Charges Against Former CEO of REIT

The SEC settled charges against Jeffrey Fishman, the former president and chief executive officer of One Liberty Properties, Inc. (OLP), a publicly traded New York based real estate investment trust, alleging two fraudulent schemes in which he received approximately $1.6 million in illicit profits. According to the SEC's complaint, filed in the U.S. District Court for the Eastern District of New York, between 2001 and 2005, Fishman raised approximately $940,000 from seventeen individuals to invest in Medemil and misappropriated at least $609,000 of this amount to pay personal expenses and to gamble. By 2005, all of the Medemil investors’ funds had been dissipated as a result of Fishman’s misconduct and through trading losses.  The complaint further alleges that in 2002 and 2003, Fishman received almost $1 million in undisclosed kickbacks from two of OLP’s commercial partners in exchange for more favorable terms in connection with business transactions involving OLP.

Without admitting or denying the allegations in the complaint, Fishman consented to the entry of a final judgment that enjoins him from violating or aiding and abetting future violations of the securities laws, permanently bars him from serving as an officer or director of a public company, and orders him to pay $821,843.65 in disgorgement and prejudgment interest, and a $75,000 civil penalty.

August 28, 2008 in SEC Action | Permalink | Comments (0) | TrackBack (0)

ALJ Orders Cease and Desist of Illegal Stock Option Programs

An administrative law judge ordered James Y. Lee to cease and desist from violations of the registration provisions of the securities laws and to disgorge $2,866,375 of ill-gotten gains. From 2002 to 2005, Lee advised and guided several microcap issuers in raising millions of dollars by selling their common stock to the public in violation of the registration requirements.  Lee introduced at least fourteen clients (the Issuers) to so-called employee stock option programs, under which the Issuers sold billions of shares of common stock in unregistered offerings. Under the programs, the Issuers improperly registered the shares underlying the stock options on Form S-8 registration statements and then received the bulk of the sales proceeds as payment for the options’ exercise price. Lee introduced the programs to the Issuers, helped implement the programs, and provided advice on how to administer the programs, even though he knew, or should have known, that his conduct was contributing to the Issuers’ registration violations.

August 28, 2008 in SEC Action | Permalink | Comments (0) | TrackBack (0)

SEC Settles Charges Involving Fractional Interests in Oil & Gas

The SEC filed a civil action in the United States District Court for the District of Colorado against Donald H. Allen and his two wholly-owned companies, H&M Petroleum Corporation (“H&M”) and American Energy Resources Corporation (“AER”), for violations of the antifraud and registration provisions of the federal securities laws.  In its Complaint, the SEC alleges that, between March 2002 and December 2006, Allen, H&M, and AER raised approximately $9.9 million from at least 355 investors nationwide through a series of unregistered offerings of fractional interests in oil and gas projects. These projects were marketed to the public through cold call telephone solicitations and “seminars” advertised in local newspapers. According to the Complaint, Allen, H&M, and AER diverted over $2.3 million to Allen’s personal use. The defendants also misrepresented or omitted material information about their track record, projected return on the investments, and their own investment in the offerings. Allen, AER, and H&M agreed to settle the SEC’s charges without admitting or denying the allegations in the Complaint. Relief includes payment of $510,000 in disgorgement to harmed investors.


August 28, 2008 in SEC Action | Permalink | Comments (0) | TrackBack (0)

Second Circuit Affirms Dismissal of Indictment Against Former KPMG Partners and Employees Because of 6th Amendment Violation

In a major victory for the white collar defense bar, the Second Circuit affirmed the district court's dismissal of the indictment against former KPMG partners and employees because the government deprived the defendants of their Sixth Amendment right to counsel by causing KPMG to place conditions on the advancement of legal fees and to cap the fees and ultimately end them.  U.S. v. Stein (2d Cir. August 28, 2008).

August 28, 2008 in Judicial Opinions | Permalink | Comments (0) | TrackBack (0)

DOJ Revises Corporate Charging Guidelines

Deputy Attorney General Mark R. Filip announced today that the Department of Justice is revising its corporate charging guidelines for federal prosecutors.  The revised guidelines state that credit for cooperation will not depend on the corporation’s waiver of attorney-client privilege or work product protection, but rather on the disclosure of relevant facts.  Corporations that disclose relevant facts may receive due credit for cooperation, regardless of whether they waive attorney-client privilege or work product protection in the process.  While prior guidance had allowed federal prosecutors to request the disclosure of non-factual attorney-client privileged communications and work product -- which the old guidelines designated “Category II” information -- the new guidance forbids it, with two exceptions.

The new Principles also instruct prosecutors not to consider a corporation’s advancement of attorneys’ fees to employees when evaluating cooperativeness.  They also make clear that the mere participation in a joint defense agreement will not render a corporation ineligible for cooperation credit.  In addition, the new guidance provides that prosecutors may not consider whether a corporation has sanctioned or retained culpable employees in evaluating whether to assign cooperation credit to the corporation.

Many speculate that the changes were made at this time to forestall Congressional action that might impose further limitations on federal prosecutors.  It remains to be seen if these changes will be seen as a sufficient response to widespread criticism of past government practice.

August 28, 2008 in News Stories | Permalink | Comments (0) | TrackBack (0)

Wednesday, August 27, 2008

SEC Charges Illegal Forex Trading Scheme

The SEC recently filed an action in Dallas federal court to halt an alleged unregistered and fraudulent offering of securities by Patrick H. Haxton and his company Royal Forex Management, LLC ("Royal"). that involve the trading of foreign currencies on the Forex market. The judge entered a temporary restraining order suspending the offering and orders freezing the defendants' assets, requiring sworn accountings, prohibiting any alteration or destruction of documents and expediting discovery. The Commission's Complaint alleges that from at least June 2007 to the present defendants raised at least $305,000 from 8 investors in three states. Haxton offers the Forex investments through the Royal web site, advertising on his work truck and personal contacts. Royal's promotional materials and Haxton's oral statements included claims of 400% to 500% annual returns.

The defendants are charged with securities fraud under Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and with conducting an unregistered offering under Section 5 of the Securities Act. The Complaint also seeks permanent injunctions, civil penalties and disgorgement of ill-gotten gains, among other relief, against each defendant.

August 27, 2008 in SEC Action | Permalink | Comments (1) | TrackBack (0)

Con-way Settles FCPA Charges

The SEC settled charges that Con-way Inc. (Con-way), an international freight transportation company, violated the books and records and internal controls provisions of the Foreign Corrupt Practices Act. According to the complaint, a Philippines-based firm controlled by Con-way made approximately $417,000 in improper payments to numerous foreign government officials between 2000 and 2003. Without admitting or denying the allegations in the Commission's complaint, Con-way agreed to pay a $300,000 civil penalty.

In a related action, the Commission also issued a settled cease-and-desist order against Con-way finding that Con-way violated the books and records and internal controls provisions of the Exchange Act in connection with the improper payments made by Emery Transnational. Without admitting or denying the Commission's findings, Con-way consented to the issuance of an order that requires Con-way to cease and desist from committing or causing any violations and any future violations of Sections 13(b)(2)(A), 13(b)(2)(B), and 13(b)(5) of the Exchange Act.

August 27, 2008 in SEC Action | Permalink | Comments (0) | TrackBack (0)

SEC Proposes Roadmap to IFRS by 2014

The SEC voted to publish for public comment a proposed Roadmap that could lead to the use of International Financial Reporting Standards (IFRS) by U.S. issuers beginning in 2014. The Commission would make a decision in 2011 on whether adoption of IFRS is in the public interest and would benefit investors. The proposed multi-year plan sets out several milestones that, if achieved, could lead to the use of IFRS by U.S. issuers in their filings with the Commission.

In his opening remarks at the SEC's meeting, Chairman Cox noted that since March 2007, the Commission and staff have held three roundtables to examine IFRS, including one earlier this month regarding the performance of IFRS and U.S. GAAP during the subprime crisis. Almost one year ago, the Commission issued a concept release on allowing U.S. issuers to prepare financial statements using IFRS.

Today, more than 100 countries around the world, including all of Europe, currently require or permit IFRS reporting. Approximately 85 of those countries require IFRS reporting for all domestic, listed companies.

August 27, 2008 in SEC Action | Permalink | Comments (0) | TrackBack (0)

SEC Adopts Changes to Reporting Requirements for Foreign Issuers

The SEC voted today to update and modernize the disclosure requirements for foreign companies offering securities in U.S. markets.  The rule amendments eliminate requirements for foreign companies without SEC-registered securities to submit paper disclosures and instead give investors instant electronic access to foreign company disclosure documents, in English, on the Internet. After a period of transition, foreign reporting companies also will be required to file their annual reports with the SEC two months earlier, making those submissions more timely and therefore more useful to investors. The rule amendments also facilitate the ability of U.S. investors to participate in cross-border tender offers and other business combinations.  According to the SEC's press release, the changes "reflect advances in technology and other recent global changes, and bring the SEC's foreign company disclosure requirements into the 21st Century."

Specifically, the Commission adopted three sets of rule amendments.

One set of amendments, called Foreign Issuer Reporting Enhancements, will update Securities Exchange Act filing requirements and enhance disclosure required by foreign private issuers in response to changes in foreign filing requirements, market practices, and other areas of SEC regulation. The rule amendments shorten the deadline for annual reports filed by foreign private issuers from six months to four months. The rule amendments also enable foreign issuers to test their eligibility to use the special forms and rules available to foreign private issuers once a year, rather than continuously; enhance the disclosures a foreign private issuer provides to investors regarding any changes in and disagreements with its certifying accountant in its annual reports and registration statements; and revise the annual report and registration statement forms used by foreign private issuers to improve certain disclosures provided in these forms.

A second set of amendments concerns Exchange Act Rule 12g3-2(b), which exempts a foreign private issuer from registering a class of equity securities based on submission to the SEC of certain information published outside the U.S. The exemption allows a foreign private issuer to have its equity securities traded in the U.S. over-the-counter (OTC) market without registration under Section 12(g). The adopted rule amendments will eliminate the current written application and paper submission requirements under Rule 12g3-2(b) by automatically exempting a foreign private issuer from Section 12(g) provided they meet specified conditions. As is currently the case, issuers must continue registering their securities under the Exchange Act to have them listed on a national securities exchange or traded on the OTC Bulletin Board.

The Commission also voted to adopt changes to its cross-border exemptions. These amendments are intended to expand and enhance the utility of the exemptions for business combination transactions, tender offers, and rights offerings and to encourage offerors and issuers to permit U.S. security holders to participate in these transactions on the same terms as other security holders. Among the amendments are codifications of existing interpretive positions and exemptive orders in the cross-border area, as well as amendments to allow specified foreign institutions to report beneficial ownership on Schedule 13G to the same extent as their U.S. institutional counterparts. The Commission also voted to provide interpretive guidance on several topics that come up frequently for practitioners in the cross-border area.

August 27, 2008 in SEC Action | Permalink | Comments (0) | TrackBack (0)

Sunday, August 24, 2008

Choi et alia on Director Elections and Proxy Advisors

Director Elections and the Role of Proxy Advisors, by Stephen J. Choi, New York University - School of Law; Jill E. Fisch, University of Pennsylvania Law School, and Marcel Kahan, New York University - School of Law, was recently posted on SSRN.  Here is the abstract:

Using a dataset of proxy recommendations and voting results for uncontested director elections from 2005 and 2006 at S&P 1500 companies, we examine how advisors make their recommendations. Of the four firms we study, Institutional Shareholder Services (ISS), Proxy Governance (PGI), Glass Lewis (GL), and Egan Jones (EJ), ISS has the largest market share and is widely regarded as the most influential. We find that the four proxy advisory firms differ substantially from each other both in their willingness to issue a withhold recommendation and in the factors that affect their recommendation.

It is not clear that these differences, or the bases for the recommendations, are transparent to the institutions that purchase proxy advisory services. If the differences are not apparent, investors may not accurately perceive the information content associated with a withhold recommendation, and investors may rely on those recommendations based on an erroneous understanding of the basis for that recommendation. To the extent that proxy advisors aggregate information for the purpose of facilitating an informed shareholder vote, these limitations may impair the effectiveness of the shareholder franchise. If the differences are apparent, our results show that investors, though selecting a proxy advisor, can indirectly choose the bases for their vote on directors. To that extent, it is likely that proxy advisory firms will retain more investor clients if their recommendations are based on factors that their clients consider relevant.

August 24, 2008 in Law Review Articles | Permalink | Comments (0) | TrackBack (0)

Fisch on Causation in Federal Securities Fraud

Cause for Concern: Causation and Federal Securities Fraud, by Jill E. Fisch, University of Pennsylvania Law School, was recently posted on SSRN.  Here is the abstract:

The Supreme Court's decision in Dura Pharmaceuticals dramatically changed federal securities fraud litigation. The Dura decision itself said little, but counseled lower courts to fashion new requirements of causation and harm modeled upon common law tort principles. These instructions have led lower courts to craft a series of confusing and inconsistent decisions that incorporate little of the reasoning upon which the common law principles are based.

This Article accepts the Dura challenge and examines both common law causation principles and their applicability to federal securities fraud. In so doing, the Article identifies the failure of the federal courts properly to confront the complex causation challenges presented by securities fraud and the extent to which common law approaches to multiple and indeterminate causation offer guidance. Common law causation analysis further highlights the critical issue of harm specification. The Article demonstrates how, from Basic to Dura, the Supreme Court has refused to address the issue of what constitutes an appropriate economic loss, despite the fact that this determination is a necessary predicate to formulating a causation requirement. The Article goes on to show how, in Basic, the Court shifted the nature of actionable harm and, in so doing, exacerbated the complexity of causation analysis.

Defining the appropriate harm involved in securities fraud is challenging. Drawing upon tort law principles, the Article considers several alternatives, ranging from artificial price inflation and ex post stock drop, to increased investment risk. The choice among these alternatives reflects policy judgments about the appropriate goals of private securities fraud litigation. In its final section, the Article considers current critiques of securities fraud litigation and demonstrates how these concerns should influence the scope of the private right of action.

August 24, 2008 in Law Review Articles | Permalink | Comments (0) | TrackBack (0)

Thomas et alia on CEO Employment Contracts and Arbitration

When Do CEOs Bargain for Arbitration?: A Theoretical and Empirical Analysis, by Randall S. Thomas,
Vanderbilt University - School of Law; Vanderbilt University - Owen Graduate School of Management; Erin A. O'Hara, Vanderbilt University School of Law, and Kenneth J. Martin, New Mexico State University - Department of Finance & Business Law, was recently posted on SSRN.  Here is the abstract:

In this paper, we ask whether CEOs bargain to include binding arbitration provisions in their employment contracts. After exploring the theoretical arguments for and against including such provisions in these agreements, we use a large sample of CEO employment contracts to test the several different hypotheses for including such provisions. We find that only about one half of CEO employment contracts in our sample include such provisions. We further find that CEOs that receive a higher percentage of long term incentive pay as a fraction of their total pay, that work in industry sectors that are undergoing greater amounts of change, and that have lower long term profitability are statistically significantly more likely to have arbitration provisions in their employment contracts.

August 24, 2008 in Law Review Articles | Permalink | Comments (0) | TrackBack (0)

Friday, August 22, 2008

SEC Post Agenda for August 27 Open Meeting

The SEC posted its agenda for its next Open Meeting, scheduled for August 27, 2008 at 10:00 a.m.  The subject matter of the Open Meeting will be:

The Commission will consider whether to adopt amendments to its rules regarding the circumstances under which a foreign private issuer is required to register a class of equity securities under Section 12(g) of the Exchange Act.

The Commission will consider whether to adopt amendments to the forms and rules applicable to foreign private issuers that are intended to enhance the information that is available to investors.

The Commission will consider whether to adopt revisions to the current exemptions for cross-border business combination transactions and rights offerings to expand and enhance the usefulness of the exemptions, and to adopt changes to the beneficial ownership reporting rules to permit certain foreign institutions to file reports on a shorter form. The Commission also will consider whether to publish interpretive guidance on issues related to cross-border transactions.

The Commission will consider whether to propose a Roadmap for the potential use by U.S. issuers for purposes of their filings with the Commission of financial statements prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board. As part of the Roadmap, the Commission will also consider whether to propose amendments to various rules and forms that would permit early use of IFRS by a limited number of U.S. issuers.

August 22, 2008 in SEC Action | Permalink | Comments (0) | TrackBack (0)

D.C. Circuit Holds that Creation of PCAOB was Constitutional

In Free Enterprise Fund v. PCAOB (D.C. Cir. Aug. 22, 2008), the D.C. Circuit, with one Judge dissenting, held that Title I of the Sarbanes-Oxley Act (which created the Public Company Accounting Oversight Board) was constitutional and did not violate the appointments clause and separation of powers because it does not permit adequate Presidential control of the Board.  The majority stated:

We hold, first, that the Act does not encroach upon the Appointment power because, in view of the Commission’s comprehensive control of the Board, Board members are subject to direction and supervision of the Commission and thus are inferior officers not required to be appointed by the President.  Second, we hold that the for-cause limitations on the Commission’s power to remove Board members and the President’s power to remove Commissioners do not strip the President of sufficient power to influence the Board and thus do not contravene separation of powers, as that principle embraces independent agencies like the Commission and their exercise of broad authority over their subordinates. Accordingly, we affirm the grant of summary judgment to the Board and the United  States.

Judge Kavanaugh, in dissent, described the case as "the most important separation-of-powers case regarding the President’s appointment and removal powers to reach the courts in the last 20 years."  Both opinions are lengthy, and much of the majority opinion is spent in refuting the dissent's arguments.Download PCABO_DCopinion.pdf

August 22, 2008 in Judicial Opinions | Permalink | Comments (0) | TrackBack (0)

SEC Enters Preliminary Settlement with Merrill Lynch over ARSs

Today the SEC's Division of Enforcement today announced that a preliminary settlement in principle has been reached with Merrill Lynch, Pierce, Fenner & Smith, Inc. (Merrill Lynch) about auction rate securities (ARSs), a day after New York, Massachusetts and NASAA announced settlements.  The settlement would enable investors who purchased auction rate securities from the firm to receive a total of up to $7 billion to restore their losses and liquidity.  In addition to helping individual investors, small businesses, and charities who were ARS customers of Merrill Lynch, the preliminary settlement also would require Merrill Lynch to use its best efforts to provide liquidity for approximately $1.5 billion worth of ARS purchased through Merrill Lynch by other business and institutional customers. The terms of the settlement are subject to finalization, review and approval by the Commission.

Under the terms of the agreement in principle:

No later than Oct. 1, 2008, Merrill Lynch will offer to liquidate at par all ARS from individual, charitable, and small business investors with account values up to $4 million who purchased ARS from Merrill Lynch prior to the collapse of the ARS market in mid-February 2008. This offer will include investors who held ARS in their Merrill Lynch account as of Feb. 13, 2008, but who subsequently transferred the account to another firm. The offer will remain open until Jan. 15, 2010, and investors may accept it at any time before that date.

No later than Jan. 2, 2009, Merrill Lynch will offer to liquidate at par all ARS from remaining individual and charitable investors, and from small businesses with account values up to $100 million who purchased ARS from Merrill Lynch prior to the collapse of the ARS market in mid-February 2008. This offer will include investors who held ARS in their Merrill Lynch account as of Feb. 13, 2008, but who subsequently transferred the account to another firm. The offer will remain open until Jan. 15, 2010, and investors may accept it at any time before that date.

Until Merrill Lynch actually provides for the buy back of ARS on the schedule set forth above, Merrill Lynch will provide certain investors no cost loans that will remain outstanding until the ARS are repurchased or until an investor declines Merrill Lynch's offer to repurchase the securities at par.

Merrill Lynch will reimburse customers for costs incurred under any prior loan programs the firm provided to its ARS investors.

Merrill Lynch will make whole any losses sustained by any of the investors described above who sold ARS after Feb. 13, 2008, at a loss.

To the extent that any of the investors described above has incurred consequential damages due to the loss of liquidity in the customer's ARS holdings, Merrill Lynch will participate in a special arbitration process that the investor may elect, and that will be overseen by the Financial Industry Regulatory Authority (FINRA), whereby Merrill Lynch will not contest liability for its misrepresentations and omissions concerning ARS.

Merrill Lynch will use its best efforts to provide liquidity to its ARS institutional customers and business customers with accounts of more than $100 million by the end of 2009.

Merrill Lynch will not liquidate its own inventory of a particular ARS before it liquidates investors' holdings in that security.

Merrill Lynch will provide notice to all of its ARS investors of the settlement terms and will establish a telephone assistance line to respond to questions from investors concerning the settlement.

Merrill Lynch will be permanently enjoined from violating the provisions of Section 15(c) of the Securities Exchange Act of 1934, and Rule 15c1-2 thereunder, which prohibit the use of manipulative or deceptive devices by broker-dealers.

Merrill Lynch faces the prospect of a financial penalty to the SEC after it has completed its obligations under the settlement agreement. A determination as to the amount of the penalty, if any, will take into account, among other things, the extent of Merrill Lynch's misconduct in marketing and selling ARS, an assessment of whether Merrill Lynch has satisfactorily completed its obligations under the settlement, and the costs incurred by Merrill Lynch in meeting those obligations, including penalties incurred and the cost of remediation.

August 22, 2008 in SEC Action | Permalink | Comments (0) | TrackBack (0)

Thursday, August 21, 2008

Three More Firms Settle with States over ARSs

The Wall St. Journal reports that state regulators have entered into settlements with three more securities firms to buy back "billions" of dollars of auction rate securities from retail investors, small businesses and charities.  In addition, Merrill Lynch will pay a $125 million penalty, Goldman Sachs will pay a $22.5 million penalty, and Deutsche Bank will pay a $15 million penalty.  The Journal also reports that Merrill Lynch entered a separate settlement with the Massachusetts Attorney General to buy back illiquid ARSs from retail customers.  (As of 6:40 p.m. today, there are no announcements on the websites of NASAA, the New York AG, or the Massachusetts Secretary of State.  Meanwhile, a check of the SEC's website the last few days shows that it has been busy suspending trading in stocks that haven't made the requisite filings.)  WSJ, Auction-Rate Securities Accords Between Banks, States Continue.

August 21, 2008 in Other Regulatory Action | Permalink | Comments (0) | TrackBack (0)

Tuesday, August 19, 2008

Former SEC Chair Pitt Assists Alabama in Short-Sales Investigation

Harvey Pitt, formerly the SEC Chair, has been appointed a deputy AG of the state of Alabama, to assist it in its investigation into naked short-selling and negative rumors about Colonial BancGroup.  InvNews, Pitt to work with Alabama on naked shorting .

August 19, 2008 in Other Regulatory Action | Permalink | Comments (0) | TrackBack (0)

SEC Announces IDEA, EDGAR's Successor

I just went to the SEC website, as I frequently do, and I have to say, it was a little scary.  To announce the successor to EDGAR, called IDEA, the SEC's website starts off with electronic sound and a deep voice stating, ominously, "Information in the digital era should never be static."  At first I thought some spam ad had taken over the site, but no -- it's just the fanfare.  Here's the boring part:

The new system is called IDEA, short for Interactive Data Electronic Applications. Based on a completely new architecture being built from the ground up, it will at first supplement and then eventually replace the EDGAR system. The decision to replace EDGAR marks the SEC’s transition from collecting forms and documents to making the information itself freely available to investors to give them better and more up-to-date financial disclosure in a form they can readily use.

Currently, most SEC filings are available only in government-prescribed forms through EDGAR. Investors looking for information must sift through one form at a time, and then re-keyboard the information — a painstaking task. With IDEA, investors will be able to instantly collate information from thousands of companies and forms, and create reports and analysis on the fly, in any way they choose.

IDEA will ensure that both the SEC and the investors who rely upon the financial reporting the agency demands are ready for the new world of financial disclosure that will soon arrive when financial information is presented in interactive data format. The SEC has formally proposed requiring U.S. companies to provide financial information using interactive data beginning as early as next year, and separately has proposed requiring mutual funds to submit their public filings using interactive data.

Interactive data relies on computer “tags,” similar in function to bar codes, which identify individual items in a company’s financial disclosures. With every number on an income statement or balance sheet individually labeled, information about thousands of companies contained on thousands of forms could be easily searched on the Internet, downloaded into spreadsheets, reorganized in databases, and put to any number of other comparative and analytical uses by investors, analysts, journalists, and financial intermediaries.

The ease with which interactive data will make financial information available also is expected to generate many new Web-based services and products for investors.

Investors and others who currently use EDGAR will be able to continue doing so for the indefinite future. During the transition to IDEA, investors will be able to take advantage of new interactive, IDEA-like features that will be grafted onto EDGAR in the short run. This will make it possible for investors to tap IDEA’s advanced search capabilities, and to use the information from EDGAR within spreadsheets and analytical software – something that was never possible with EDGAR. The EDGAR database also will continue to be available as an archive of company filings for past years.

August 19, 2008 in SEC Action | Permalink | Comments (0) | TrackBack (0)

Saturday, August 16, 2008

SEC Obtains Asset Freeze Against Alleged International Fraud

The SEC obtained an emergency court order freezing the profits from an alleged $13 million international fraud involving a Seattle-area microcap company and a Barcelona stock promoter. The Commission charged GHL Technologies, Inc., and its CEO Gene Hew-Len with issuing a series of false press releases touting the company's business dealings. The Commission also charged Francisco Abellan (also known as "Frank Abel") of Barcelona, Spain with coordinating the scheme, sending glossy promotional mailers to over 2 million U.S. recipients and unloading over $13 million in GHL stock on unsuspecting investors.  At the SEC's request, the federal district court in Tacoma, Wash. Thursday issued an order freezing Abellan's assets and prohibiting him from further dissipating the proceeds of the scheme (most of which, according to the SEC, he transferred to multiple bank accounts in the principality of Andorra).

GHL (later renamed NXGen Holdings, Inc.) is an installer of GPS-based navigation equipment. According to the Commission's complaint, in early 2006, President and CEO Hew-Len and stock promoter Abellan arranged for GHL to issue millions of shares of GHL stock to offshore entities designated by Abellan. In April 2006, the SEC alleges, Abellan caused the dissemination of "The Street Stock Report," a full-color glossy mailer sent to millions of U.S. addresses urging investors to purchase GHL stock quickly to see huge trading profits. Around the same time, Hew-Len issued nine press releases over a nine-week period hyping the company. Among other things, according to the SEC, the press releases made false claims about contracts with large customers, fraudulently touting millions of dollars in potential revenues.  Following this concerted promotion campaign, GHL's stock price doubled and trading volume spiked nearly 1500%. Abellan and his entities sold their GHL stock holdings for profits in excess of $13 million. The stock, which reached a high of nearly $9 per share at the height of the scheme, now trades at under a penny.

The SEC's complaint charges GHL, Hew-Len and Abellan with numerous securities violations and seeks preliminary and permanent injunctions, disgorgement, penalties, and other permanent and emergency relief. Pursuant to the court's order, a hearing will be held on August 27, 2008 to determine whether the asset freeze will remain in place during the remainder of the litigation.

August 16, 2008 in SEC Action | Permalink | Comments (0) | TrackBack (0)