Securities Law Prof Blog

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

Sunday, January 25, 2009

Horwich on Disclosure of Sick CEOs

When the Corporate Luminary Becomes Seriously Ill: When Is a Corporation Obligated to Disclose that Illness and Should the Securities and Exchange Commission Adopt a Rule Requiring Disclosure?, by Allan Horwich, Schiff Hardin LLP; Northwestern University - School of Law, was recently posted on SSRN.  Here is the abstract:

Recent speculation and rumors about the health of senior corporate executives of public companies (most notably Steve Jobs of Apple Inc.) and the advanced age of many leaders in the corporate community prompt a consideration of when, if at all, there must be public disclosure of the ill health of a person whose involvement in a corporation is perceived as vital to the continued financial success or independence of that company. This Article addresses the application of various disclosure requirements under the Securities Exchange Act of 1934 to facts regarding the health of a corporate "luminary." An adverse development in the health of a luminary that has, or may have, an adverse material impact on the company may not trigger an immediate disclosure obligation. There are, however, numerous situations where ill health with an adverse material corporate impact may have to be disclosed. In order to avoid uncertainty in this area - since there are competing views on the application of Exchange Act disclosure principles to personal health-related facts - this Article proposes a rule for adoption by the Securities and Exchange Commission that would impose a disclosure requirement in narrow circumstances.

January 25, 2009 in Law Review Articles | Permalink | Comments (0) | TrackBack (0)

Rochvarg on Regulation of Lawyers

Enron, Watergate and the Regulation of the Legal Profession, by Arnold Rochvarg, University of Baltimore - School of Law, was recently posted on SSRN.  Here is the abstrat:

The most famous scandal of the twentieth century was the Watergate scandal, which most notably led to the resignation of Richard Nixon as President of the United States. The significance of Watergate, however, extends further than the resignation of Nixon. Because Watergate involved so many lawyers, it had a great impact on the regulation of the legal profession. Although the twenty-first century has just started, the strongest contender for this century's most famous scandal is the Enron scandal. Although the Enron scandal is identified mostly with misconduct by accountants and corporate officials, it too involved lawyers and has impacted on the regulation of the legal profession. Although the two scandals differ in that Watergate was a political scandal involving the misconduct of government officials, and Enron was a financial scandal involving misconduct of accountants and corporate officials, the issues involving lawyers are identical. Most significant to this symposium is that both scandals involve important issues concerning the role of an attorney for an organization when the attorney learns of information indicating misconduct by those working for and/or in charge of the attorney's organizational client. The purpose of this article is to discuss these issues as presented by the Watergate and Enron scandals, and to analyze how the responses by the legal profession and the federal government have impacted the regulation of the legal profession. The article will first discuss how issues involving the role of an attorney when representing an organizational client that has engaged in misconduct were central to the Watergate scandal. The article will then discuss reforms of the legal profession that were made in response to Watergate. These reforms were primarily the efforts of the legal profession itself. Next, the article will discuss the similarity of the Enron scandal to the Watergate scandal. Enron also involved issues of an attorney's role when representing an organizational client that has engaged in misconduct. As the article will discuss, the reform efforts in response to the Enron scandal differed from those in response to Watergate in that after Enron, the federal government through the Sarbanes-Oxley Act, and various actions by the Securities and Exchange Commission (SEC), sought to control various aspects of the regulation of the legal profession. As the article will demonstrate, the Enron scandal has brought forth changes that seriously challenge the traditional view of the legal profession as self-regulating.

January 25, 2009 in Law Review Articles | Permalink | Comments (0) | TrackBack (1)

Friday, January 23, 2009

Regulatory Reform Symposium at UCincinnati April 3

University of Cincinnati College of Law Corporate Law Center and Law Review's Twenty Second Annual Symposium: 

New Models of Regulating the Financial Markets:  The SEC's Future as It Turns 75

April 3, 2009   8:00 a.m. – 4:00 p.m.

The U.S. financial markets and financial institutions have long enjoyed a reputation for promoting capital formation, market stability, and investor protection. The financial meltdown and other market events, however, have renewed criticisms of the U.S. regulatory model as outmoded, anticompetitive, and ineffective.  In addition, the collapse of major financial services companies and the Bernard Madoff scandal have seriously damaged the Securities and Exchange Commission’s reputation as regulator of the securities markets.

The 75th Anniversary of the Securities and Exchange Commission marks an appropriate occasion for an examination of these issues.  The Symposium’s speakers will address proposals for regulatory reform from a variety of perspectives, both academic and practical.

Confirmed Speakers:

James D. Cox, Brainerd Currie Professor, Duke University School of Law

Roberta S. Karmel, Centennial Professor, Brooklyn Law School

Jerry W. Markham, Professor of Law, Florida International University

Adam C. Pritchard, Professor of Law, University of Michigan School of Law

Janis Sarra, The University of British Columbia, Faculty of Law

William K. Sjostrom, Jr., Salmon P. Chase College of Law, Northern Kentucky University

Jonathan S. Sokobin, Director of the Office of Risk Assessment, Securities and Exchange Commission

Cynthia A. Williams, Osler Chair in Business Law, Osgoode Hall Law School, York University

CLE Credit Applied For and Is Expected.

The Event will be Webcast.

January 23, 2009 in Professional Announcements | Permalink | Comments (0) | TrackBack (2)

Thursday, January 22, 2009

Former Cablevision Employees Settle "Prepay" Charges

The SEC filed a settled civil action against Catherine R. McEnroe, Noreen O'Loughlin and Martin von Ruden in United States District Court for the Eastern District of New York, alleging improper expense recognition at Cablevision Systems Corporation (Cablevision).  The complaint alleges that from at least 1999 through mid-2003, contrary to GAAP, Cablevision recognized certain costs as current expenses when, in fact, the expenses should not have been recognized in those periods. These improper "prepays" occurred because employees prepared and submitted inaccurate invoices and other documents in order to accrue expenses earlier than when they should have been accrued. These improperly recognized expenses were reflected in Cablevision's books, records and accounts and caused Cablevision to overstate expenses in earlier fiscal periods and understate expenses in later periods. As a result, Cablevision's reports to the public and the Commission for the period 1999 through mid-2003 were inaccurate and caused Cablevision to restate its financial statements filed with the Commission for the period 2000 through the first nine months of 2003.

The Commission's complaint alleges that McEnroe, O'Loughlin and von Ruden, while serving as officers and managers of significant business units of Cablevision, directed or were aware of improper prepays and signed inaccurate payment authorization forms that caused improper prepays, and that they thereby violated Section 13(b)(5) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 13b2-1 thereunder. Without admitting or denying the allegations in the Commission's complaint, McEnroe, O'Loughlin and von Ruden consented to final judgments ordering them to pay civil penalties of $30,000, $15,000, and $15,000, respectively.

In a related settled cease-and-desist proceeding against them, and also without admitting or denying the Commission's factual findings in its Order Instituting Cease-and-Desist Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings and Imposing a Cease-and-Desist Order, McEnroe, O'Loughlin and von Ruden each also consented to an administrative order to cease and desist from committing or causing any violations and any future violations of Exchange Act Section 13(b)(5) and Rule 13b2-1 thereunder.

Separately, the Commission today announced that it instituted settled cease-and-desist proceedings against Cablevision for improper expense recognition. For further information, see Release No. 34-59277 / Jan. 22, 2009.

January 22, 2009 in SEC Action | Permalink | Comments (0) | TrackBack (2)

GM Settles Pension Disclosure Charges

The SEC filed settled charges against General Motors Corporation (GM) relating to its disclosures concerning two pension accounting estimates and its projected cash contributions to its pension plans, as well as errors in its accounting for derivatives and various other transactions. According to the SEC's complaint, filed in federal court in the District of Columbia, GM violated the issuer reporting, books-and-records, and internal controls provisions of the federal securities laws.

With regard to GM's pension plans, the complaint alleges that GM made material misstatements or omissions in its 2002 Form 10-K concerning the disclosure of two critical pension accounting estimates - its pension discount rate for 2002 and its expected return on pension assets for 2003.

According to the complaint, GM had stated publicly in an August 2002 pension conference call with analysts that it used a duration matched approach to select its discount rate, but failed to disclose in its 2002 Form 10-K that its use of a 6.75% discount rate was developed from a non-duration matched approach, which was materially higher than the rate developed from a duration matched model. In addition, the complaint alleges that with respect to the discount rate, GM maintained inadequate internal controls to provide reasonable assurance that transactions would be recorded as necessary to permit preparation of financial statements in compliance with generally accepted accounting principles, including a process for reviewing and adopting discount rate recommendations to provide reasonable assurance that the recommendation was developed in a reasoned and unbiased manner.

The complaint further alleges that since at least the mid-1980s, GM's expected return assumption had never been higher than its most recent 10 year average return. In its 2001 Form 10-K and during the August 2002 pension call, GM referred to its rolling 10 year historical average return of 10% or better as support for the reasonableness of its 10% expected return assumption. In its 2002 Form 10-K, GM did not state that its most recent 10 year average return was below its new assumption set at year-end. According to the complaint, if GM had used an expected return consistent with its 10 year historical average, it would have reduced its 2003 pre-tax earnings by $680 million.

The complaint also alleges that in that same 2002 Form 10-K and in three 10-Q filings, GM failed to disclose material information about the timing and amount of its projected cash contributions to its pension plans to avoid variable rate premiums to the Pension Benefit Guaranty Corporation (PBGC) and the impact such contributions might have on its liquidity and capital resources.

With regard to GM's other transactions, the SEC's complaint alleges that GM made material misstatements that included improperly accounting for a $97 million transaction involving the sale and repurchase of precious metals inventory in its 2000 Form 10-K; prematurely recognizing in its 2001 Form 10-K and Q3 2001 Form 10-Q a $100 million signing bonus it received for entering into a railroad shipping contract; and improperly accounting for two types of derivatives contracts - a Canadian dollar mirror hedge strategy and "normal purchase normal sale" arrangements of commodities - in its 2004 Form10-K. The complaint also alleges that GM maintained inadequate internal controls in these areas and maintained inaccurate books and records in connection with these transactions.

GM simultaneously settled the charges, without admitting or denying the allegations, by consenting to the entry of a final judgment permanently enjoining it from violating Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934 and Rules 12b-20, 13a-1, and 13a-13 thereunder. The settlement is subject to court approval.

January 22, 2009 in SEC Action | Permalink | Comments (0) | TrackBack (0)

Wednesday, January 21, 2009

SEC Gets Emergency Action Against Another Alleged Ponzi Scheme

Yet another alleged ponzi scheme -- On January 20, 2009, the U.S. District Court for the Northern District of Texas, Lubbock Division, appointed a receiver and froze the assets of a former bail bondsman who is purportedly managing a hedge fund worth at least $45 million on behalf of 31 individual investors. Defendant Rod Cameron Stringer claims that his stock trading strategy has generated annual returns as high as 61%, and total returns in excess of 600%. However, according to the SEC, Stringer has been operating a fraudulent scheme since at least 2001, during which he has misappropriated millions of dollars of investor funds to support an extremely lavish lifestyle and to make Ponzi payments to earlier investors with new investor funds. Many of Stringer's investors are elderly.

Specifically, the complaint alleges that defendant Stringer used less than 20% of the investors' funds to engage in securities transactions, and those transactions have resulted in substantial losses, not gains, as reported to investors. While Stringer's alleged fraudulent scheme began as early as 2001, an expedited investigation by the Federal Bureau of Investigation (FBI) and the Commission focused on Stringer's activities since January 2007. Since that time, the complaint alleges that Stringer raised at least $8.5 million from approximately 12 -15 investors. Contrary to Stringer's representations, only approximately $1.5 million of this amount made its way into three securities brokerage accounts, each of which is maintained in Stringer's personal name. The exact disposition of the remaining funds is presently unknown, but it is clear that Stringer used substantial amounts of investor funds to, among other things, finance a horse racing partnership, purchase a luxury boat, build a swimming pool at his office, purchase several pieces of jewelry, pay off mortgages on at least two houses, and purchase several expensive cars and trucks. Further, since January 2007, the complaint alleges that Stringer has used at least $2.4 million of the $8.5 million invested by his hedge fund clients to pay distributions and purported profits to other investors

The Court has frozen Stringer's assets and appointed a receiver to recover and conserve assets for the benefit of defrauded investors.

January 21, 2009 in SEC Action | Permalink | Comments (0) | TrackBack (0)

SEC Issues Opinion in Revoking Registration for Failure to File Reports

The SEC issued an opinion that upheld the ALJ's decision ordering that the registration of NATURE’S SUNSHINE PRODUCTS, INC. common stock be revoked under section 12(j) for failure to file any required 10-K and 10-Q reports since it filed its 10-k report for December 31, 2004.  In its opinion the Commission reviewed the factors it takes into account in determining whether revocation is appropriate and rejected the company's argument that revocation amounted to a "draconian" sanction that operated as a "corporate death penalty."

January 21, 2009 in SEC Action | Permalink | Comments (0) | TrackBack (1)

SEC Seeks Emergency Relief Against Missing Hedge Fund Manager

It's hard keeping track of all the ponzi schemes that wealthy investors fell for, but you may recall that Sarasota Florida's Arthur Nadel, a hedge fund manager, vanished recently and so apparently did his clients' $350 million.  NYDailyNews, Another Bernard Madoff? Hedge-fund manager Arthur Nadel vanishes with $350 million of clients' cash.  Today the SEC went to court again to close the door after the horse was gone.  According to its release, the SEC filed a civil injunctive action in the United States District Court for the Middle District of Florida charging Arthur Nadel with fraud in connection with six hedge funds (the "Funds") for which he acted as the principal investment advisor. According to the Commission's complaint, Nadel provided false and misleading information for dissemination to investors about the Funds' historical returns and falsely overstated the value of investments in the Funds by approximately $300 million. In contrast, the Funds appear to have total assets of less than $1 million. Nadel has been missing since January 14, 2009.

The Commission's complaint also alleges that defendant Nadel recently transferred at least $1.25 million from two of the funds to secret bank accounts that he controlled.

The complaint seeks a temporary restraining order, an asset freeze, and preliminary injunction against Nadel and preliminary injunctions and asset freezes against Scoop Capital and Scoop Management. In addition, the complaint seeks permanent injunctions, disgorgement plus prejudgment interest, and civil money penalties against all the defendants. Without admitting or denying the allegations of the complaint, defendants Scoop Capital and Scoop Management consented to the entry of, among other things, preliminary injunctions, asset freezes, and the appointment of a Receiver.

The complaint also names as relief defendants two investment management companies, Valhalla Management, Inc. and Viking Management, LLC, and the six Funds, Scoop Real Estate, L.P., Valhalla Investment Partners, L.P., Victory IRA Fund, Ltd., Victory Fund, Ltd, Viking IRA Fund, LLC, and Viking Fund, LLC. The complaint seeks disgorgement plus prejudgment interest against each of the relief defendants. Without admitting or denying the allegations of the complaint, the relief defendants consented to asset freezes and the appointment of a Receiver.

Also on January 21, United States District Judge Richard A. Lazzara granted all of the emergency relief requested by the SEC and appointed a Receiver.

January 21, 2009 in SEC Action | Permalink | Comments (0) | TrackBack (0)

Sunday, January 18, 2009

Harris on Contested Corporate Elections

The Quiet Revolutionary: The Absence of Retail Investors in Contested Corporate Elections, by Lee A. Harris,  University of Memphis - Cecil C. Humphreys School of Law, was recently posted on SSRN.  Here is the abstract:

Shareholder-led campaigns to install new leadership at U.S. firms occur too rarely and, when they do occur, are led by the same boring, cast of characters too often. This Article presents empirical evidence that the system of contested corporate elections is broken. When it comes to the interests of retail investors-i.e., individuals usually with small stakes in a particular firm-the evidence suggests that contested corporate elections are virtually off-limits. Retail investors almost never launch a campaign and their interests are not represented well by those who do. This Article presents empirical evidence that the lop-sided nature of the current structure reduces the number of contested corporate elections overall, particularly those that, but for the rules, would originate from retail investors.

January 18, 2009 in Law Review Articles | Permalink | Comments (0) | TrackBack (0)

Henderson on Two Visions of Corporate Law

Two Visions of Corporate Law, by M. Todd Henderson, University of Chicago - Law School, was recently posted on SSRN.  Here is the abstract:

In a recent paper, Professor Robert Ahdieh argues that the debate about whether corporate law federalism leads to a race to the top or the bottom is pointless because state corporate law has little to do with the quality of corporate governance. Ahdieh thinks that markets, like those for corporate control and labor, are what make corporate governance what it is, not state competition for corporate charters.

This essay, which will appear in the George Washington Law Review as part of a colloquy on Ahdieh's thought-provoking paper, argues that the race debate matters because while the market for corporate control disciplines managers, it is competition among states that disciplines states from distorting the market for corporate control.

After showing that the race debate matters, the essay then tries to explain the persistence and ideological valence of the debate. Why is it that the debate continues despite innumerable empirical and theoretical studies on both sides, and why is it that defenders of the federalism model are mostly conservatives and critics are mostly liberals? The answer to both questions is that the race debate is really a conflict between two visions of corporate law held by these groups. Using the framework developed by Thomas Sowell, the essay shows how the split in the academic community about the optimality of the corporate law model can be explained by one's faith in experts (what Sowell calls the "unconstrained" vision) or by one's faith in processes, like markets (what Sowell calls the "constrained" vision). The essay then offers some preliminary thoughts on the implications of this description for corporate law scholarship and some ideas on how to move the debate forward.

January 18, 2009 in Law Review Articles | Permalink | Comments (0) | TrackBack (2)

Choi & Silberman on Transnational Litigation

Transnational Litigation and Global Securities Class Actions, by Stephen J. Choi, New York University - School of Law, and Linda Silberman, New York University School of Law, was recently posted on SSRN.  Here is the abstract:

Courts apply a number of doctrines, including the conduct and effects test, in determining how far to extend jurisdiction in securities class actions involving transnational securities fraud. Courts often focus on whether foreign jurisdictions will recognize a U.S. class action judgment and the presence of alternative remedies abroad in determining both jurisdiction and the propriety of a class action. We focus our analysis on the present extraterritorial regime as applied to securities class actions involving foreign issuers and, at least in part, foreign investors transacting abroad (often referred to as "f-cubed" litigation). We argue that the conduct and effects test, as well as court inquiries into whether foreign jurisdictions will recognize U.S. judgments and the presence of alternative remedies abroad, are uncertain in their application and as a result unpredictable. We propose instead that courts adopt a uniform, bright-line exchange-based presumptive rule in determining the applicable class in a Rule 10b-5 class action. Courts should presume jurisdiction over all investors trading in a company's securities within the United States and presume no jurisdiction for Rule 10b-5 suits for foreign investors trading outside the United States. Focusing on U.S. investors in a class action results in an equivalent level of incentive for private plaintiffs' attorneys to file a class action under Rule 10b-5 compared with domestic issuers with a similar level of U.S. investor ownership and trading volume and thus an equal level of private deterrence against the negative effects to the U.S. markets of fraud.

January 18, 2009 in Law Review Articles | Permalink | Comments (0) | TrackBack (0)

Saturday, January 17, 2009

SEC's 2008 Report

I am not certain when it was posted, but I just discovered the SEC's 2008 Report posted on its website, to "celebrate" the 75th anniversary of the SEC.  It's pretty much a fluff piece and nary a tone of defensiveness nor irony as the Report recounts the accomplishments of the agency during the time when its effectiveness is being seriously questioned and the issue at Mary Schapiro's confirmation hearing was how to restore the SEC's credibility as a tough regulator.  But if you're wondering what the agency accomplished in 2008, here's the agency's account.

January 17, 2009 in SEC Action | Permalink | Comments (0) | TrackBack (5)

SEC Bars Former Invesco Wholesaler for Market Timing Payments

On January 14, the SEC issued an administrative Order against Michael K. Brugman.  The Order finds that from mid-2001 through December 2002, Brugman, who was at the time a wholesaler for Invesco Funds Group, Inc. (IFG), accepted personal payments totaling over $3 million from various entities in exchange for procuring market timing capacity with the Invesco funds. Brugman never disclosed these payments to IFG.  The Order bars Brugman from association with any broker, dealer, or investment adviser, and is prohibited from serving or acting as an employee, officer, director, member of an advisory board, investment adviser or depositor of, or principal underwriter for, a registered investment company or affiliated person of such investment adviser, depositor, or principal underwriter. Additionally, the Order states that Brugman shall cease and desist from committing or causing any violations and any future violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and shall pay disgorgement of $700,000.00. Brugman consented to the issuance of the Order without admitting or denying any of the findings in the Order.

January 17, 2009 in SEC Action | Permalink | Comments (0) | TrackBack (0)

SEC Extends Deadline for Survey on 404

The SEC's Office of Economic Analysis (OEA) has extended the deadline to January 31 for public companies’ participation in a Web-based survey about the costs and benefits of Section 404 of the Sarbanes-Oxley Act of 2002.  The survey, which is available at, will help inform the SEC’s ongoing cost-benefit study of Section 404 implementation with a focus on the consequences for smaller companies.  More than 2,000 companies already have completed the voluntary survey, which is open to any company with Section 404 compliance experience in the U.S. and globally.

The SEC says that it wants to assess the effects of measures taken by both the SEC and the Public Company Accounting Oversight Board (PCAOB), including whether the measures have helped companies reduce their costs of compliance and whether the Commission should consider additional measures.

January 17, 2009 in SEC Action | Permalink | Comments (1) | TrackBack (2)

Thursday, January 15, 2009

SEC Files Complaint Against BarrierMed for Offering Fraud

The SEC filed a Complaint For Injunctive Relief today in the United States District Court for the Middle District of Florida against BarrierMed, Inc. (BarrierMed) and BarrierMed Glove Co. (BarrierMed Glove) (collectively, the Companies) and their founder and former chief executive officer and president Victor J. Ragucci. BarrierMed and BarrierMed Glove purported to develop and sell latex-free gloves for use in the medical industry.  The Commission's complaint alleges that Ragucci and the Companies fraudulently raised over $11 million from hundreds of investors nationwide by offering and selling unregistered securities through a series of private offerings from at least 2003 through approximately February 2007. According to the complaint, Ragucci made materially false and misleading statements to investors concerning the Companies' operating results, revenues, future profits and the nature and impact of certain contracts. The Complaint also alleges that Ragucci misled investors regarding the Companies' production capabilities and announced product launches despite failing to obtain requisite United States Food and Drug Administration approvals to sell the gloves. The complaint further alleges that the defendants repeatedly misrepresented that the Companies were preparing to conduct an initial public offering, fabricated Ragucci's credentials, and misrepresented Ragucci's salary.

The Commission seeks permanent injunctions and disgorgement of ill-gotten gains with prejudgment interest against the defendants. The Commission also seeks the imposition of a civil money penalty and an officer and director bar against Ragucci.

January 15, 2009 in SEC Action | Permalink | Comments (0) | TrackBack (3)

Transcript of SEC's Small Business Capital Formation Program Available

The SEC has posted the record of proceedings of the TWENTY-SEVENTH ANNUAL SEC GOVERNMENT-BUSINESS FORUM ON SMALL BUSINESS CAPITAL FORMATION PROGRAM, held on November 20, 2008, at its website.

January 15, 2009 in SEC Action | Permalink | Comments (0) | TrackBack (7)

SEC Goes After Georgia-Based Alleged Ponzi Scheme

Another Day, another Ponzi scheme --

On January 15, 2009, the SEC filed a Complaint For Injunctive and Other Relief ("Complaint") in the United States District Court for the Northern District of Georgia against CRE Capital Corporation ("CRE") and James G. Ossie ("Ossie"). The Complaint alleges that, since at least early 2008, CRE and Ossie have raised at least $25 million from over 120 investors. As alleged in the Complaint, CRE offers "30 Day Currency Trading Contracts," which promise a guaranteed ten percent (10%) return (the "ROI") in thirty days. The Complaint also alleges that CRE and Ossie claim that they generate profits sufficient to pay these guaranteed returns by trading United States and Japanese currency contracts as the exchange rate fluctuates. Further, the Complaint alleges that CRE and Ossie told investors that the program involves very little risk because CRE has established a large, defensive reserve fund from which to pay back the 10% ROI, plus redeemed principal. In fact, as alleged in the Complaint, CRE does not generate sufficient returns from currency trading to pay the promised returns. The Complaint alleges that the defendants claim CRE and its program were audited by an outside accounting firm which concluded that the investment program was not a Ponzi scheme. In fact, according to the complaint, CRE operated as a Ponzi scheme by paying all returns to investors from funds contributed by new investors.

The Complaint also alleges that CRE planned to launch a $100 million stock offering in early 2009, pursuant to which CRE intended to sell 50 million shares at $2 per share. In connection with that offering, the Complaint alleges that Ossie told potential investors that CRE business operations had been analyzed by an independent firm for estimation of stock value, and that the firm opined that CRE stock should be worth $40-$45 per share. The complaint alleges that these projections were misleading because CRE was insolvent.

On January 15, 2009, the defendants consented to the entry of an order granting the Commission's requests for (i) a temporary restraining order; (ii) an asset freeze; (iii) an accounting of all funds raised; (iv) the appointment of a receiver for defendant CRE; and (v) an order expediting discovery and preventing the destruction of documents. The Commission's Complaint also seeks (i) preliminary and permanent injunctions against future violations; (ii) disgorgement of ill-gotten gains plus prejudgment interest; and (iii) imposition of civil penalties.

January 15, 2009 in SEC Action | Permalink | Comments (0) | TrackBack (0)

Schapiro Confirmation Hearing was Uneventful

The confirmation hearing of Mary Schapiro, currently FINRA CEO and President-Elect Obama's pick for SEC Chair, was held today.  According to a Wall St. Journal blog, it was uneventful.  When she was asked about FINRA's failure to uncover the Madoff fraud, she noted that the fraud was in his investment advisory operation, over which FINRA has no regulatory authority. The most animated exchange was elicited by a question about the WSJ's article today that was highly critical of Schapiro's performance at FINRA.  Schapiro said that the article was unfair and enumerated FINRA's accomplishments during her tenure. 

January 15, 2009 in News Stories | Permalink | Comments (0) | TrackBack (3)

Wednesday, January 14, 2009

ALJ Suspends Attorney from Practice before SEC for Improper Conduct

A SEC Administrative Law Judge has issued an Initial Decision in Steven Altman, Esq., finding that Steven Altman (Altman) committed improper professional conduct, violating Section 4C of the Securities Exchange Act of 1934 and Securities and Exchange Commission (Commission) Rule of Practice 102(e). The Initial Decision finds that Altman, while representing a witness in a Commission administrative proceeding, sought benefits for his client in exchange for behavior and/or testimony by the client that would have adversely impacted that proceeding. Based on the findings of improper professional conduct and public interest factors, Chief Administrative Law Judge Brenda P. Murray has suspended Altman from practicing as an attorney before the Commission for a period of nine months. (

January 14, 2009 in SEC Action | Permalink | Comments (0) | TrackBack (0)

SEC Invesmtne Management Director Reviews Accomplishments

Andrew J. Donohue, Director, SEC's Division of Investment Management, reviewed the 2008 Accomplishments of Investment Management at the Mutual Fund Directors Forum Third Annual Directors' Institute on Jan. 13.

January 14, 2009 in SEC Action | Permalink | Comments (0) | TrackBack (1)