Securities Law Prof Blog

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

Thursday, October 22, 2009

SEC Charges Promoters of Real Estate Investment Scheme Targeted at Seniors with Fraud

The SEC charged a N.Y.-based real estate funds promoter and the former president of a broker-dealer firm with orchestrating a multi-million dollar real estate investment scheme. The SEC also charged two brokers at the firm with selling unregistered securities by means of "free lunch" seminars they used to coax elderly investors into making the risky investments.

SEC Chairman Mary L. Schapiro announced the enforcement action during remarks she made today at a forum in Washington D.C. sponsored by AARP and the National Consumers League. When discussing senior fraud, Chairman Schapiro noted that the SEC has brought nearly 70 enforcement actions during the past three years against fraudsters targeting elderly investors.

According to the SEC's complaint in this case, filed in federal court in Brooklyn, N.Y., the investment scheme collected nearly $12 million from approximately 90 investors while the promoter made numerous misrepresentations, including that the return was more than 50 percent on the sale of some properties in which they were investing. The SEC also alleges that the real estate funds promoter, Charles C. Slowey, Jr., misappropriated more than $1 million of investor funds in such ways as charging excessive management fees and taking out an interest-free personal loan to purchase his own home.

The SEC charged four entities involved in the scheme. Endeavor Partners LLC and Endeavor Capital Management Group LLC, both of which are controlled by Slowey, acted as the managing members of all four real estate investment funds involved. The broker-dealer firm Advanced Planning Securities, Inc. (APS) sold the Endeavor Funds through its agents. Oldham Harris, Inc. (OHI) is a Kenosha, Wisc.-based retirement advisory business through which two of the brokers provided their brokerage services to APS.

The three brokers at APS charged by the SEC are Edward D. Puttick, Sr., Gregory L. Oldham and Glenn R. Harris. Puttick was the firm's former owner and president.

According to the SEC's complaint, Oldham, Harris, and OHI solicited investors by means of invitations to free lunch or dinner "seminars" at restaurants. On several occasions, Slowey joined Oldham and Harris at the gatherings to help them make sales of Endeavor Securities to potential investors at the seminars or in meetings at the OHI office scheduled shortly afterwards. Many of the investors to whom Oldham, Harris, and OHI sold these investments were elderly and of limited means, and few had previously invested in private placement securities or securities based on distressed or subprime mortgages.

The SEC's complaint charges each of the defendants with violations of Sections 5(a) and 5(c) of the Securities Act of 1933. Further, the SEC's complaint charges Slowey, Endeavor Partners and Endeavor Capital, Puttick and APS with violations of Section 17(a) of the Securities Act, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The SEC's complaint seeks a final judgment permanently enjoining the defendants (except APS) from future violations of the above provisions of the federal securities laws, ordering them to disgorge their ill-gotten gains plus prejudgment interest on a joint and several basis, and ordering them to pay financial penalties.

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

House Financial Services Votes for Consumer Financial Protection Agency

The House Financial Services Committee voted (39-29) to create a Consumer Financial Protection Agency, a new, independent federal agency solely devoted to protecting Americans from unfair and abusive financial products and services. This is a central part of the Obama Administration's Financial Regulatory Reform and has met with fierce resistance by both business interests and banking regulators.

October 22, 2009 in News Stories | Permalink | Comments (0) | TrackBack (0)

Fed Issues Proposal to Review Incentive Compensation Practices at Big Banks

This morning I read in the New York Times that Morgan Stanley had returned to profitability and had plans to pay its employees healthy bonuses, because, its CFO said, "we have to pay people competitively." He also said the company planned to hire 400 new employees, mostly outside the U.S., to rebuild its trading business.  NYTimes, Morgan Stanley Returns to a Profit.  Maybe someone in government took notice too, because later today the Federal Reserve announced proposals on executive compensation o discourage excessive risk-taking at the big banks.  Here is part of the press release:

The Federal Reserve Board on Thursday issued a proposal designed to ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of their organizations.

The proposal includes two supervisory initiatives. One, applicable to 28 large, complex banking organizations, will review each firm's policies and practices to determine their consistency with the principles for risk-appropriate incentive compensation set forth in the proposal. These firm-specific policies will be assessed by supervisors in a special "horizontal review," a coordinated examination of practices at the 28 firms. The policies and implementing practices adopted by these firms in response to the final supervisory principles will become a part of the supervisory expectations for each firm and will be monitored for compliance.

Second, supervisors will review compensation practices at regional, community, and other banking organizations not classified as large and complex as part of the regular, risk-focused examination process. These reviews will be tailored to take account of the size, complexity, and other characteristics of the banking organization.


Flaws in incentive compensation practices were one of many factors contributing to the financial crisis. Inappropriate bonus or other compensation practices can incent senior executives or lower level employees, such as traders or mortgage officers, to take imprudent risks that significantly and adversely affect the firm. With that in mind, the Federal Reserve's guidance and supervisory reviews cover all employees who have the ability to materially affect the risk profile of an organization, either individually, or as part of a group.

The findings from these reviews will be incorporated into the banking organization's supervisory ratings. In appropriate circumstances, the Federal Reserve may require an organization to develop a corrective action plan to rectify deficiencies in its incentive compensation programs and processes.

To monitor and encourage improvements, Federal Reserve staff will prepare a report after the conclusion of 2010 on trends and developments in compensation practices at banking organizations.

  In addition, Kenneth Feinberg provided additional information on the negotiations with the seven companies bailed out by the government and how he made his decisions to slash top officers' compensation; The Special Master for TARP Executive Compensation Issues First Rulings.   NYTimes, Fed Plans to Vet Banker Pay to Discourage Risky Practices.

October 22, 2009 in News Stories | Permalink | Comments (0) | TrackBack (0)

Wednesday, October 21, 2009

Pay Czar Will Order Pay Cuts at Seven Recipients of Bailout Funds

The federal "pay czar," Kenneth Feinberg, will order the seven companies receiving the most federal bailout money to reduce the cash compensation to their 25 highest-paid employees by about 90%.  Many employees will instead receive restricted stock.  Total compensation to those employees will be reduced by about 50%.  Feinberg will also require a number of corporate governance changes, such as splitting the CEO and Board Chairman positions and eliminating staggered boards.  NYTimes, U.S. to Order Steep Pay Cuts at Firms That Got Most Aid; WSJ, Pay Czar to Slash Compensation at Seven Firms.

October 21, 2009 in News Stories | Permalink | Comments (0) | TrackBack (0)

SEC Settles Insider Trading Charges in Georgia Pacific Stock

The SEC announced that the United States District Court for the Northern District of Illinois entered Final Judgment as to defendant Dr. Gautam Gupta ("Gupta") in connection with insider trading charges in Georgia Pacific Corporation. The Court ordered disgorgement and prejudgment interest against Gupta in the respective amounts of $689,401 and $188,096.17. The Court also imposed a civil penalty against Gupta in the amount of $689,401, the full amount of his insider trading profits. The Court ordered Gupta to satisfy payment of these amounts in accordance with a monthly payment schedule over a period of one year. Gupta consented to the entry of the judgment without admitting or denying the allegations of the Commission's Complaint.

The Commission's complaint alleged fraud in connection with insider trading in the securities of Georgia-Pacific Corporation by three individuals who received tips directly or indirectly from defendant James D. Zeglis ("Zeglis"), now deceased. The Complaint alleged that Zeglis misappropriated material nonpublic information from his brother, a member of Georgia-Pacific's board of directors, and further alleged that on November 10, 2005, three days before a public announcement that Georgia-Pacific had agreed to be acquired by Koch Industries, Inc., Zeglis tipped Gupta and Jim W. Dixon ("Dixon"), both of whom purchased Georgia-Pacific securities. Gupta, in turn, tipped Lance D. McKee ("McKee"), who also purchased Georgia-Pacific securities.

Further, the Complaint alleged that after Zeglis tipped Dixon, Dixon purchased Georgia-Pacific options on Zeglis's recommendation, and paid Zeglis a kickback from his ill-gotten gains. Within moments after meeting with Zeglis, Gupta transferred $400,000 from a commodities brokerage account to his bank account and placed a 40 second phone call to McKee. After the phone call from Gupta, McKee almost immediately purchased 500 shares of Georgia-Pacific stock, a stock he had never previously purchased. Within a few hours, Gupta had opened a brokerage account, transferred the $400,000 into his new brokerage account, and made his first stock purchase in ten years by purchasing 20,000 shares of Georgia-Pacific. The following day, Gupta purchased an additional 10,000 shares and then purchased 241short term call options in Georgia-Pacific, increasing his investment in Georgia-Pacific securities to more than $1 million. Further, the Complaint alleged that on Sunday, November 13, 2005, Koch Industries, Inc. ("Koch") publicly announced a definitive agreement for a Koch subsidiary to make a cash tender offer for all shares of Georgia-Pacific. The following day, Georgia-Pacific's stock price increased 36% in response to the announcement. Gupta then sold his Georgia-Pacific securities, realizing profits of $689,401.

Final judgments have previously been entered against all other defendants.

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

SEC Proposes Rules on Dark Pools

The SEC voted to propose measures intended to increase transparency of dark pools so investors get a clearer view of stock prices and liquidity.  Dark pools are essentially private trading systems in which participants can transact their trades without displaying quotations to the public. The largest dark pools are sponsored by securities firms primarily to execute the orders of their customers and proprietary orders of the firms.  The number of active dark pools transacting in stocks that trade on major U.S. stock markets has tripled since 2002. Given this growth of dark pools, a lack of transparency could create a two-tiered market that deprives the public of information about stock prices and liquidity.

To make trading through dark pools more transparent, the SEC's proposals generally would require that information about an investor's interest in buying or selling a stock be made available to the public instead of just a select group operating with a dark pool. The proposals also would require that dark pools publicly identify that it was their pool that executed the trade.

The SEC's proposals address three specific concerns related to dark pools:

The first proposal would require actionable Indications of Interest (IOIs) — which are similar to a typical buy or sell quote — to be treated like other quotes and subject to the same disclosure rules.

The second proposal would lower the trading volume threshold applicable to alternative trading systems (ATS) for displaying best-priced orders. Currently, if an ATS displays orders to more than one person, it must display its best-priced orders to the public when its trading volume for a stock is 5 percent or more. Today's proposal would lower that percentage to 0.25 percent for ATSs, including dark pools that use actionable IOIs.

The third proposal that would create the same level of post-trade transparency for dark pools - and other ATSs - as for registered exchanges. Specifically the proposal would amend existing rules to require real-time disclosure of the identity of the dark pool that executed the trade.

In its proposals, the Commission is seeking public comment and data on certain issues relating to dark pools. Dark pools of liquidity are one of several issues that the Commission is currently considering as part of its broad review of equity market structure.

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

Senior Financial Supervisors Say Risk Management Practices Continue to Need Improvement

The Senior Supervisors Group (SSG) that comprises senior financial supervisors from seven countries (United States, Canada, France, Germany, Japan, Switzerland, United Kingdom) today issued a report that evaluates how weaknesses in risk management and internal controls contributed to industry distress during the financial crisis.  The report — Risk Management Lessons from the Global Banking Crisis of 2008 — reviews in detail the funding and liquidity issues central to the recent crisis and explores critical areas of risk management practice in need of improvement across the financial services industry.  The report concludes that despite firms' recent progress in improving risk management practices, underlying weaknesses in governance, incentive structures, information technology infrastructure and internal controls require substantial work to address.

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

Tuesday, October 20, 2009

Perceptive Advisors Settles SEC Charges of Reg M Violations

The SEC and Perceptive Advisors LLC settled charges that from January 2005 through December 2005, Perceptive Advisors violated Rule 105 of Regulation M with respect to five repeat securities offerings. In each case, Perceptive Advisors sold securities short within five business days before the pricing of the offering, and then covered the short position, in whole or in part, with shares purchased in the offering. As a result, Perceptive obtained unlawful profits of $245,902.34.  Based on the above, the Order censures Perceptive Advisors; requires Perceptive Advisors to cease and desist from committing or causing any violations and any future violations of Rule 105 of Regulation M; and orders Perceptive Advisors to pay disgorgement of $245,902.34 plus prejudgment interest of $68,852.92, and a civil money penalty in the amount of $125,000. Perceptive has consented to the issuance of the Order without admitting or denying any of the findings in the Order

October 20, 2009 in SEC Action | Permalink | Comments (0) | TrackBack (0)

First New York Securities Settles Reg M Charges

The SEC and First New York Securities LLC settled charges that First New York violated Rule 105 of Regulation M with respect to two repeat securities offerings. On both occasions, in connection with the offering, First New York sold securities short within five business days before the pricing of the offering, and then covered the short position, in whole or in part, with shares purchased in the offering. As a result, First New York obtained unlawful profits of $39,544.35.  Based on the above, the Order censures First New York; requires First New York to cease and desist from committing or causing any violations and any future violations of Rule 105 of Regulation M; and orders First New York to pay disgorgement of $39,544.35 and prejudgment interest of $9,464.37, and a civil money penalty in the amount of $20,000. First New York consented to the issuance of the Order without admitting or denying any of the findings in the Order.

October 20, 2009 in SEC Action | Permalink | Comments (0) | TrackBack (0)

Monday, October 19, 2009

SEC Brings Failure to Supervise Charges Against Ferris Baker Watts GC

The SEC Enforcement Division instituted an administrative proceeding against Theodore W. Urban, who allegedly was the General Counsel and a member of the Board of Directors and Credit Committee of Ferris Baker Watts, Inc. (Ferris), a registered broker-dealer and investment adviser. According to the complaint, from at least August 2002 through November 2005, Ferris registered representative Stephen J. Glantz (Glantz), David A. Dadante (Dadante), who was one of Glantz's customers, and a registered representative at another brokerage firm all participated in a scheme to manipulate the market for the stock of Innotrac Corp. (Innotrac). The Division of Enforcement further alleges that all three pled guilty to violations of Section 10(b) of the Securities Exchange Act of 1934 and in their plea agreements, they all admitted that they artificially inflated and maintained the price for Innotrac stock.

The Division of Enforcement alleges that Urban had the requisite degree of responsibility, ability or authority at Ferris to affect the conduct of Glantz and, thus, was a supervisor of Glantz. The Division of Enforcement alleges that Urban failed to respond reasonably to red flags regarding Glantz's misconduct and lack of supervision, including, among others, those raised in a May 23, 2003 Ferris Compliance Department memorandum and in numerous communications from Compliance Department and other Ferris personnel. As a result of this conduct, the Division of Enforcement alleges that Urban failed reasonably to supervise Glantz with a view to detecting and preventing Glantz's violations of 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.

A hearing will be scheduled before an administrative law judge to determine whether the allegations contained in the Order are true, to provide Urban an opportunity to establish any defense to these allegations, and to determine what, if any, remedial action is appropriate in the public interest against Urban.

October 19, 2009 in SEC Action | Permalink | Comments (0) | TrackBack (0)

SEC Proposes Revisions to Notice and Access Provisions of Proxy Rules

On October 14 the SEC published proposed changes to the proxy rules to improve the notice and access model for furnishing proxy materials to shareholders. Specifically, it proposes revisions to provide additional flexibility regarding the format of the Notice of Internet Availability of Proxy Materials that is sent to shareholders. The proposal also provides guidance about the current requirement for the Notice to identify the matters intended to be acted on at the shareholders’ meeting. In addition, the SEC proposes a new rule that will permit issuers and soliciting shareholders to include explanatory materials regarding the process of receiving and reviewing proxy materials and voting, as well as revisions to the timeframe for delivering a Notice to shareholders when a soliciting person other than the issuer relies on the notice-only option.

Comments should be received on or before November 20, 2009.

October 19, 2009 in SEC Action | Permalink | Comments (0) | TrackBack (0)

Sunday, October 18, 2009

Canova on Financial Market Failure

Financial Market Failure as a Crisis in the Rule of Law: From Market Fundamentalism to a New Keynesian Regulatory Model, by Timothy A. Canova, Chapman University - School of Law, was recently posted on SSRN.  Here is the abstract:

This article considers the financial panic of 2008 in historical context by analyzing the institutional and regulatory factors that contributed to the financial and economic crisis. The move away from a Keynesian regulatory model was a function of larger institutional flaws. The Keynesian regime of command-and-control regulation focused on macroeconomic policy objectives designed to achieve full employment, more equitable distributions of wealth and income, greater transparency in the regulatory process, and reduction in monopoly exploitation of consumers. Central to this regime was a model of central banking that required greater accountability to elected branches of government and the use of selective credit controls to complement general monetary policy measures. As the Federal Reserve (the Fed) became increasingly subject to agency capture by its private financial constituencies, it also became a leading force behind the deregulation of interest rates and lending standards, and the adoption of risk-based capital requirements. These trends, in turn, undermined the transparency of financial institutions and markets, and encouraged the development of an unsustainable, bubble economy. The privatized Federal Reserve System represents a profound rule-of-law failure that is reflected in today’s bailout model which socializes losses and privatizes gains for “too big to fail” financial institutions. This captured Fed represents a significant impediment to effective financial regulation and a proper balance of constitutional authority on monetary and fiscal policymaking between elected and appointed branches and private actors. This article recommends reviving the model of institutional law and Keynesian economics by suggesting a more complete and integrated approach to financial regulation that would keep competition within prescribed limits while allocating credit and capital away from private, speculative activity and into longer-term public investment in physical and social infrastructure. A necessary precondition is reform of the Fed’s institutional structure to safeguard monetary policy and financial regulation from a self-serving financial industry.

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

Friday, October 16, 2009

SEC Charges Three with Running Ponzi Scheme Targeting Haitian-Americans in Florida

The SEC filed a civil injunctive action on October 16, 2009 against HomePals Investment Club, LLC and HomePals, LLC (together, “HomePals”), and their principals, Ronnie Eugene Bass, Jr., Abner Alabre and Brian J. Taglieri, alleging that they ran a Ponzi scheme and affinity fraud that targeted Haitian-American investors residing primarily in South Florida.  The SEC’s complaint alleges that from April 2008 through December 2008, the defendants raised at least $14.3 million through the sale of unsecured notes to hundreds of Haitian-American investors by promising guaranteed returns of 100% every 90 days. The defendants claimed they were able to generate such spectacular returns through Bass’ purported successful trading of stock options and commodities. The SEC’s complaint further alleges that, in reality, Bass traded no more than $1.2 million of the $14.3 million raised, generated trading losses of 19 percent, and that HomePals used the bulk of the investor funds to repay earlier investors in typical Ponzi scheme fashion. The SEC also alleges that Bass, Alabre and Taglieri misappropriated at least $668,000 of investor funds for personal use.

The SEC’s complaint, filed in the United States District Court for the Southern District of Florida, charges each of the defendants with violating Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933, Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934 and, with respect to Bass, Sections 206(1), (2) and (4) and Rule 206(4)-8 of the Investment Advisers Act of 1940. The Commission seeks permanent injunctions, disgorgement of ill-gotten gains and financial penalties against all defendants.

Separately, on October 16, 2009, the U.S. Attorney’s Office for the Southern District of Florida announced the unsealing of indictments charging Bass, Alabre and Taglieri with securities fraud, conspiracy to commit securities fraud, wire fraud and money laundering.

October 16, 2009 in SEC Action | Permalink | Comments (0) | TrackBack (0)

SEC Charges Hedge Fund Advisor with Inside Trading

The SEC charged billionaire Raj Rajaratnam and his New York-based hedge fund advisory firm Galleon Management LP with engaging in a massive insider trading scheme that generated more than $25 million in illicit gains. The SEC also charged six others involved in the scheme, including senior executives at IBM, Intel and McKinsey & Company. The SEC’s complaint, filed in federal court in Manhattan, alleges that Rajaratnam tapped into his network of friends and close business associates to obtain insider tips and confidential information about corporate earnings or takeover activity at several companies, including Google, Hilton and Sun Microsystems. He then used the non-public information to illegally trade on behalf of Galleon.

In addition to Rajaratnam and Galleon, the SEC’s complaint charges:

Danielle Chiesi of New York, N.Y. — a portfolio manager at New Castle Funds.
Rajiv Goel of Los Altos, Calif. — a managing director at Intel Capital, an Intel subsidiary.
Anil Kumar of Saratoga, Calif. — a director at McKinsey & Company.
Mark Kurland of Mount Kisco, N.Y. — a Senior Managing Director and General Partner at New Castle.
Robert Moffat of Ridgefield, Conn. — a senior vice president at IBM.
New Castle Funds LLC — a New York-based hedge fund 

 The complaint seeks a final judgment permanently enjoining the defendants from future violations of the above provisions of the federal securities laws, ordering them to disgorge their ill-gotten gains plus prejudgment interest, and ordering them to pay financial penalties. The complaint also seeks to permanently prohibit Goel, Kumar and Moffat from acting as an officer or director of any registered public company.

October 16, 2009 in SEC Action | Permalink | Comments (0) | TrackBack (0)

SEC & CFTC Issue Report on Harmonizing Regulation of Futures and Securities

The SEC and the CFTC issued a joint report identifying areas where the agencies' regulatory schemes differ and recommending actions to address those differences, where appropriate.  In June, the White House released a White Paper on Financial Regulatory Reform calling on the SEC and CFTC to "make recommendations to Congress for changes to statutes and regulations that would harmonize regulation of futures and securities." Today's report includes 20 recommendations to enhance enforcement powers, strengthen market and intermediary oversight and improve operational coordination.

Over the past several months, the SEC and the CFTC have engaged in extensive discussions, including their first ever joint public meetings last month. The meetings solicited views from members of the investor community, academics, industry experts and market participants on the current regulatory scheme, harmonization of the agencies' rules and recommendations for changes to statutes and regulations. The agencies also solicited written comments to further assist their deliberations.

October 16, 2009 in SEC Action | Permalink | Comments (0) | TrackBack (0)

Thursday, October 15, 2009

Schwab Receives Wells Notice over Bond Funds

Charles Schwab said it received a Wells notice from the SEC about two bond funds that are the subject of a class action suit and numerous arbitrations.  Investors in the two funds, Yield Plus Fund andTotal Bond Market Fund, allege that the funds were marketed as conservative investments, but lost substantial amounts of their value because of their investments in mortgage-backed securities.  InvNews, Schwab slapped with SEC warning; YieldPlus settlement may be on the horizon.

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

House Committee Approves Legislation to Regulate OTC Derivatives

The House Financial Services Committee today approved legislation that would, for the first time ever, require the comprehensive regulation of the over-the-counter (OTC) derivatives marketplace. Today’s bill, which was approved by a vote of 43-26, represents a key part of a broader effort by Congress and President Obama to modernize America’s financial regulatory system in response to last year’s financial crisis.

Under the bill, all standardized swap transactions between dealers and large market participants, referred to as “major swap participants,” would have to be cleared and must be traded on an exchange or electronic platform. A major swap participant is defined as anyone that maintains a substantial net position in swaps, exclusive of hedging for commercial risk, or whose positions creates such significant exposure to others that it requires monitoring. OTC derivatives include swaps, which are contracts that call for an exchange of cash between two counterparties based on an underlying rate, index, credit event or the performance of an asset.

The legislation then sets out parallel regulatory frameworks for the regulation of swap markets, dealers, and major swap participants.  Rulemaking authority is held jointly by the Commodity Futures Trading Commission (CFTC), which has jurisdiction over swaps, and the Securities and Exchange Commission (SEC), which has jurisdiction over security-based swaps.   The Treasury Department is given the authority to issue final rules if the CFTC and SEC cannot decide on a joint approach within 180 days. Subsequent interpretations of rules must be agreed to jointly by the Commissions.

Here's SIFMA's press release on the legislation:

“Bringing greater regulatory transparency and oversight to derivatives markets and products is a key component of reforming our financial system. That oversight must also recognize the important role these risk management tools play for countless companies across the country and for our broader economy. Mandating particular transaction modes, as this bill does, could raise transaction costs while not necessarily reducing risk in a commensurate amount—results that we believe are contrary to our shared reform goals. As the legislative process continues we look forward to working with the Congress toward a bill that strikes a balance between the need for transparency and risk management efficiency.”

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

Wednesday, October 14, 2009

Former United Rental Officer Settles SEC Accounting Fraud Charges

The SEC announced that John N. Milne, a former Vice Chairman, President and Chief Financial Officer of United Rentals, Inc. (“URI”) has agreed to settle pending fraud charges filed against him by the Commission. The SEC alleged that, from 2000 through 2002, Milne engaged in a series of fraudulent transactions undertaken in order to meet URI’s earnings forecasts and analyst expectations. The complaint alleges that Milne and others carried out the fraud through a series of interlocking three-party transactions, structured as “minor sale-leasebacks,” to allow URI to recognize revenue prematurely and to inflate profits generated from the sales. As a result of the fraud, URI materially overstated its financial results in its Forms 10-K for fiscal years 2000 and 2001, and its Forms 10-Q for the periods ended June 30, 2001 and March 31, 2002, as well as in other public releases.

The complaint further alleges that shortly after URI announced 2001 and 2002 year-end results, Milne sold URI stock that he owned, knowing that the company’s announced financial results were materially overstated.

Without admitting or denying the allegations in the complaint, Milne consented to the entry of a Final Judgment, subject to the court’s approval, permanently enjoining him from future violations of Section 17(a) of the Securities Act of 1933, and Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934, and Rules 10b-5, 13b2-1 and 13b2-2 thereunder, and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act, and Rules 12b-20, 13a-1, and 13a-13, thereunder, imposing a permanent officer and director bar against him, and ordering him to pay disgorgement and prejudgment interest of $6.25 million

The U.S. Attorney’s Office for the District of Connecticut also announced that Milne today pleaded guilty to one count of conspiracy to falsify the books and records of URI while he served as its CFO, and that he has agreed to a term of incarceration of 24–30 months.

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

SEC's Next Open Meeting Will Discuss "Dark Pools"

The SEC's next Open Meeting is Wednesday, October 21, 2009 at 10:00 a.m.  The subject matter of the Open Meeting will be:

The Commission will consider recommendations to propose amendments to the regulatory requirements that apply to non-public trading interest, including so-called "dark pools" of liquidity. The recommended proposals are to: (1) amend the definition of "bid" or "offer " in Regulation NMS under the Securities Exchange Act of 1934 (Exchange Act) to address actionable indications of interest; (2) amend the display obligations of alternative trading systems in Regulation ATS under the Exchange Act; and (3) amend the joint-industry plans for disseminating consolidated trade data.

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

SEC Posts Rules on Internal Controls for Non-Accelerated Filers

The SEC posted on its website its final rules regarding INTERNAL CONTROL OVER FINANCIAL REPORTING IN EXCHANGE ACT PERIODIC REPORTS OF NON-ACCELERATED FILERS.  The agency is amending temporary rules that require companies that are non-accelerated filers to include in their annual reports, pursuant to rules implementing Section 404(b) of the Sarbanes-Oxley Act of 2002, an attestation report of their independent auditor on internal control over financial reporting for fiscal years ending on or after December 15, 2009. The amendments will extend the compliance date for filing attestation reports, so that a non-accelerated filer will be required to file the auditor’s attestation report on internal control over financial reporting when it files an annual report for a fiscal year ending on or after June 15, 2010.

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