SEC News Digest

ENFORCEMENT PROCEEDINGS

In the Matter of John R. Blot (a/k/a Victor Morgan)
In the Matter of Scott A. Ciappetta (a/k/a Steven Stiles and Steven Markowitz)
In the Matter of Digby M. Ferrera (a/k/a Casper Weiss)
In the Matter of Shawn F. Haber (a/k/a Leo Schwartz)
In the Matter of Leslie A. James (a/k/a Les James and Daryl McKinney)
In the Matter of Dimitry Kuperman (a/k/a James Kaufman, a/k/a Jimmy Kaufman)
In the Matter of Igor Malyar (a/k/a George Falcone and Michael Safir)
In the Matter of Victor Novosselov (a/k/a David Markowitz)

On September 8, the Commission issued four respective Orders Instituting Administrative Proceedings Pursuant to Section 15(b) of the Securities Exchange Act of 1934, Making Findings, and Imposing Remedial Sanctions against Igor Malyar (a/k/a George Falcone and Michael Safir) (Malyar), Scott A. Ciappetta (a/k/a Steven Stiles and Steven Markowitz) (Ciappetta), Digby M. Ferrera (a/k/a Casper Weiss) (Ferrera), and Dmitry Kuperman (a/k/a James Kaufman, a/k/a Jimmy Kaufman) (Kuperman), and one Order Instituting Administrative Proceedings Pursuant to Section 15(b) of the Securities Act of 1934 and Section 203(f) of the Investment Advisers Act of 1940, Making Findings, and Imposing Remedial Sanctions against Shawn F. Haber (a/k/a Leo Schwartz). Malyar, Ciappetta, Ferrera, Haber and Kuperman (Settling Parties) each made an offer of settlement in which they consented to the above orders against them (Settled Orders).

On the same day, the Commission also issued two respective Orders Instituting Public Administrative Proceedings Pursuant to Section 15(b) of the Securities Exchange Act of 1934, and Notices of Hearing against Viktor Novosselov (a/k/a David Markowitz) (Markowitz) and Leslie A. James (a/k/a Les James and Daryl McKinney) (James), and one Order Instituting Public Administrative Proceedings Pursuant to Section 15(b) of the Securities Exchange Act of 1934 and Section 203(f) of the Investment Advisers Act of 1940, and Notice of Hearing against John R. Blot (a/k/a Victor Morgan) (Blot).

The Settled Orders find that the five Settling Parties pled guilty to criminal convictions in federal district court based on their participation in unregistered broker-dealer Blue Square Management, Inc. (Blue Square). Similarly, the orders against Novosselov, Blot and James allege that they also pled guilty to criminal convictions in federal district court based on their Blue Square activities. In addition, the orders against Malyar and Novosselov allege that each consented to the entry of a judgment for injunctive relief in a parallel civil action brought by the Commission.

According to the Commission's complaint and the criminal informations to which they pled guilty, Novosselov held himself out as president and chief executive officer of Blue Square from January 2001 through March 2004 and Malyar helped run Blue Square's day-to-day operations from approximately October 2002 to February 2004. According to their respective criminal informations, the remaining Settling Parties and Blot and James held themselves out as either initial cold-callers or stock traders at Blue Square from approximately January 2001 through March 2004. Using various aliases, these individuals allegedly contacted potential investors across the country, represented that they worked for Blue Square and solicited investments in the securities of an entirely fictitious ATM management company. The Commission's complaint and criminal informations alleged that Blue Square raised a total of $3.7 million from over 280 people nationwide in this fraudulent offering of securities.

The Commission's complaint also alleged that Malyar held himself out as the president and CEO of unregistered broker-dealer Westwood Holdings, Inc. (Westwood), a second purported New York City-based venture capital firm, from approximately January 2004 to January 2005. Settling Parties Malyar, Ferrera and Kuperman, as well as Blot and James, each pled guilty to grand larceny charges in New York State actions based on their Westwood activities. The New York State complaints alleged that Ferrera, Kuperman, Blot and James also held themselves out as employees of Westwood and solicited investments mainly in the stock of another fictitious ATM-related company. According to the New York State complaints, approximately 90 people sent approximately $1.2 million to Westwood from December 2003 through January 2005 to purchase what they thought were legitimate stocks but which were actually stocks in fictitious companies or fake stocks in real companies.

Based on the above, the Settled Orders bar each of the Settling Parties from association with any broker or dealer, and the order against Haber also bars him from association with any investment adviser (Haber was associated with an investment adviser at the time of the alleged fraud). The Settling Parties consented to the issuance of the respective orders against them without admitting or denying any of the findings in the respective orders.

In the Matter of Igor Malyar (a/k/a George Falcone and Michael Safir) - (Rel. 34-58476; File No. 3-13162); In the Matter of Shawn F. Haber (a/k/a Leo Schwartz) - (Rels. 34-58477; IA-2774; File No. 3-13163); In the Matter of Dimitry Kuperman (a/k/a James Kaufman, a/k/a Jimmy Kaufman) - (Rel. 34-58478; File No. 3-13164); In the Matter of Digby M. Ferrera (a/k/a Casper Weiss) - (Rel. 34-58479; File No. 3-13165); In the Matter of Scott A. Ciappetta (a/k/a Steven Stiles and Steven Markowitz) - (Rel. 34-58480; File No. 3-13166); In the Matter of Leslie A. James (a/k/a Les James and Daryl McKinney) - (Rel. 34-58481; File No. 3-13167); In the Matter of Victor Novosselov (a/k/a David Markowitz) - (Rel. 34-58482; File No. 3-13168); In the Matter of John R. Blot (a/k/a Victor Morgan) - (Rels. 34-58483; IA-2775; File No. 3-13169)

Securities and Exchange Commission Orders Hearing on Registration Revocation Against Two Public Companies for Failure to Make Required Periodic Filings

On September 8, the Commission instituted public administrative proceedings to determine whether to revoke or suspend for a period not exceeding twelve months the registrations of each class of the securities of two companies for failure to make required periodic filings with the Commission:

• ARM Financial Group, Inc.
• Calex Acquisition Corp.

In this Order, the Division of Enforcement (Division) alleges that the two issuers are delinquent in their required periodic filings with the Commission.

In this proceeding, instituted pursuant to Exchange Act Section 12(j), a hearing will be scheduled before an Administrative Law Judge. At the hearing, the judge will hear evidence from the Division and the respondents to determine whether the allegations of the Division contained in the Order, which the Division alleges constitute failures to comply with Exchange Act Section 13(a) and Rules 13a-1 and 13a-13 thereunder, are true. The judge in the proceeding will then determine whether the registrations pursuant to Exchange Act Section 12 of each class of the securities of these respondents should be revoked or suspended for a period not exceeding twelve months. The Commission ordered that the Administrative Law Judge in this proceeding issue an initial decision not later than 120 days from the date of service of the order instituting proceedings. (Rel. 34-58491; File No. 3-13170)

Securities and Exchange Commission Orders Hearing on Registration Revocation Against Five Public Companies for Failure to Make Required Periodic Filings

On September 8, the Commission instituted public administrative proceedings to determine whether to revoke or suspend for a period not exceeding twelve months the registrations of each class of the securities of five companies for failure to make required periodic filings with the Commission:

• Paladin International Corp.
• Pantheon Industries, Inc. (PNTH)
• Parts.com, Inc. (PART)
• Pathfinder Data Group, Inc.
• Pavichevich Brewing Co. (BRAU)

In this Order, the Division of Enforcement (Division) alleges that the five issuers are delinquent in their required periodic filings with the Commission.

In this proceeding, instituted pursuant to Exchange Act Section 12(j), a hearing will be scheduled before an Administrative Law Judge. At the hearing, the judge will hear evidence from the Division and the respondents to determine whether the allegations of the Division contained in the Order, which the Division alleges constitute failures to comply with Exchange Act Section 13(a) and Rules 13a-1 and 13a-13 thereunder, are true. The judge in the proceeding will then determine whether the registrations pursuant to Exchange Act Section 12 of each class of the securities of these respondents should be revoked or suspended for a period not exceeding twelve months. The Commission ordered that the Administrative Law Judge in this proceeding issue an initial decision not later than 120 days from the date of service of the order instituting proceedings. (Rel. 34-58492; File No. 3-13171)

Commission Revokes Registration of Securities of Sunbase Asia, Inc. (f/k/a Centire International, Inc.) for Failure to Make Required Periodic Filings

On September 9, the Commission revoked the registration of each class of registered securities of Sunbase Asia, Inc. (f/k/a Centire International, Inc.) (Sunbase) for failure to make required periodic filings with the Commission.

Without admitting or denying the findings in the order, except as to jurisdiction, which it admitted, Sunbase consented to the entry of an Order Making Findings and Revoking Registration of Securities Pursuant to Section 12(j) of the Securities Exchange Act of 1934 as to Sunbase Asia, Inc. (f/k/a Centire International, Inc.) finding that it had failed to comply with Section 13(a) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 13a-1 and 13a-13 thereunder and revoking the registration of each class of Sunbase's securities pursuant to Section 12(j) of the Exchange Act. This order settled the charges brought against Sunbase in In the Matter of Sunbase Asia, Inc. (n/k/a Centire International, Inc.), et al., Administrative Proceeding File No. 3-13134.

Brokers and dealers should be alert to the fact that Exchange Act Section 12(j) provides, in pertinent part, as follows:

No member of a national securities exchange, broker, or dealer shall make use of the mails or any means or instrumentality of interstate commerce to effect any transaction in, or to induce the purchase or sale of, any security the registration of which has been and is suspended or revoked . . . .

For further information see Order Instituting Administrative Proceedings and Notice of Hearing Pursuant to Section 12(j) of the Securities Exchange Act of 1934, In the Matter of Sunbase Asia, Inc. (n/k/a Centire International, Inc.), et al., Administrative Proceeding File No. 3-13134, Exchange Act Release No. (Aug. 15, 2008). (Rel. 34-58493; File No. 3-13134)

Securities and Exchange Commission Orders Hearing on Registration Revocation Against Five Public Companies for Failure to Make Required Periodic Filings

Today the Commission instituted public administrative proceedings to determine whether to revoke or suspend for a period not exceeding twelve months the registrations of each class of the securities of five companies for failure to make required periodic filings with the Commission:

• Axyn Corp.
• Boss Media, Inc.
• Nexstage Corp.
• Platinum Pearls, Inc.
• Quintalinux, Ltd.

In this Order, the Division of Enforcement (Division) alleges that the five issuers are delinquent in their required periodic filings with the Commission.

In this proceeding, instituted pursuant to Exchange Act Section 12(j), a hearing will be scheduled before an Administrative Law Judge. At the hearing, the judge will hear evidence from the Division and the respondents to determine whether the allegations of the Division contained in the Order, which the Division alleges constitute failures to comply with Exchange Act Section 13(a) and Rules 13a-1 and 13a-13 or 13a-16 thereunder, are true. The judge in the proceeding will then determine whether the registrations pursuant to Exchange Act Section 12 of each class of the securities of these respondents should be revoked or suspended for a period not exceeding twelve months. The Commission ordered that the Administrative Law Judge in this proceeding issue an initial decision not later than 120 days from the date of service of the order instituting proceedings. (Rel. 34-58494; File No. 3-13172)

Securities and Exchange Commission Orders Hearing on Registration Revocation Against Four Public Companies for Failure to Make Required Periodic Filings

Today the Commission instituted public administrative proceedings to determine whether to revoke or suspend for a period not exceeding twelve months the registrations of each class of the securities of four companies for failure to make required periodic filings with the Commission:

• Amenity Zone, Inc.
• American ATM Corp. (n/k/a American Wireless Web Corp.)
• Digitec 2000, Inc.
• 3 E International Corp.

In this Order, the Division of Enforcement (Division) alleges that the four issuers are delinquent in their required periodic filings with the Commission.

In this proceeding, instituted pursuant to Exchange Act Section 12(j), a hearing will be scheduled before an Administrative Law Judge. At the hearing, the judge will hear evidence from the Division and the respondents to determine whether the allegations of the Division contained in the Order, which the Division alleges constitute failures to comply with Exchange Act Section 13(a) and Rules 13a-1 and 13a-13 thereunder, are true. The judge in the proceeding will then determine whether the registrations pursuant to Exchange Act Section 12 of each class of the securities of these respondents should be revoked or suspended for a period not exceeding twelve months. The Commission ordered that the Administrative Law Judge in this proceeding issue an initial decision not later than 120 days from the date of service of the order instituting proceedings. (Rel. 34-58495; File No. 3-13173)

Commission Orders Hearings on Registration Revocation Against Two Public Companies for Failure to Make Required Periodic Filings

The Commission today instituted public administrative proceedings to determine whether to revoke or suspend for a period not exceeding twelve months the registration of each class of the securities of two companies for failure to make required periodic filings with the Commission:

• Stylesite Marketing, Inc. (SSMKQ)
• Supreme Equipment & Systems Corp. (SEQP)

In this Order, the Division of Enforcement (Division) alleges that the two issuers are delinquent in their required periodic filings with the Commission.

In this proceeding, instituted pursuant to Exchange Act Section 12(j), a hearing will be scheduled before an Administrative Law Judge. At the hearing, the judge will hear evidence from the Division and the respondents to determine whether the allegations of the Division contained in the Order, which the Division alleges constitute failures to comply with Exchange Act Section 13(a) and Rules 13a-1 and 13a-13 thereunder, are true. The judge in the proceeding will then determine whether the registrations pursuant to Exchange Act Section 12 of the securities of these respondents should be revoked or suspended for a period not exceeding twelve months. The Commission ordered that the Administrative Law Judge in this proceeding issue an initial decision not later than 120 days from the date of service of the order instituting proceedings. (Rel. 34-58496; File No. 3-13174)

Securities and Exchange Commission Orders Hearing on Registration Revocation Against Nine Public Companies for Failure to Make Required Periodic Filings

Today the Commission instituted public administrative proceedings to determine whether to revoke or suspend for a period not exceeding twelve months the registrations of each class of the securities of nine companies for failure to make required periodic filings with the Commission:

• Camtek Technologies, Inc.
• Challedon, Inc.
• Cutty Sark Management, Inc.
• DMFI, Inc.
• Far Reach Holdings Ltd.
• For Sale.com, Inc.
• Hitchin Post, Inc.
• Mining, Milling, Manufacturing, & Marketing, Inc. of Nevada
• Western Mountain Mining, Inc.

In this Order, the Division of Enforcement (Division) alleges that the nine issuers are delinquent in their required periodic filings with the Commission.

In this proceeding, instituted pursuant to Exchange Act Section 12(j), a hearing will be scheduled before an Administrative Law Judge. At the hearing, the judge will hear evidence from the Division and the respondents to determine whether the allegations of the Division contained in the Order, which the Division alleges constitute failures to comply with Exchange Act Section 13(a) and Rules 13a-1 and 13a-13 thereunder, are true. The judge in the proceeding will then determine whether the registrations pursuant to Exchange Act Section 12 of each class of the securities of these respondents should be revoked or suspended for a period not exceeding twelve months. The Commission ordered that the Administrative Law Judge in this proceeding issue an initial decision not later than 120 days from the date of service of the order instituting proceedings. (Rel. 34-58497; File No. 3-13175)

Securities and Exchange Commission Orders Hearing on Registration Revocation Against Six Public Companies for Failure to Make Required Periodic Filings

Today the Commission instituted public administrative proceedings to determine whether to revoke or suspend for a period not exceeding twelve months the registrations of each class of the securities of six companies for failure to make required periodic filings with the Commission:

• Argyle Ventures, Inc.
• California Investment Co.
• Goldcrest Corp.
• Molecular Robotics, Inc.
• Ponderosa Partners, Inc.
• Taking Life By Storm, Inc.

In this Order, the Division of Enforcement (Division) alleges that the six issuers are delinquent in their required periodic filings with the Commission.

In this proceeding, instituted pursuant to Exchange Act Section 12(j), a hearing will be scheduled before an Administrative Law Judge. At the hearing, the judge will hear evidence from the Division and the respondents to determine whether the allegations of the Division contained in the Order, which the Division alleges constitute failures to comply with Exchange Act Section 13(a) and Rules 13a-1 and 13a-13 thereunder, are true. The judge in the proceeding will then determine whether the registrations pursuant to Exchange Act Section 12 of each class of the securities of these respondents should be revoked or suspended for a period not exceeding twelve months. The Commission ordered that the Administrative Law Judge in this proceeding issue an initial decision not later than 120 days from the date of service of the order instituting proceedings. (Rel. 34-58498; File No. 3-13176)

In the Matter of Scott B. Gann

An Administrative Law Judge has issued an Initial Decision in the matter of Scott B. Gann. The Initial Decision finds that the U.S. District Court for the Northern District of Texas permanently enjoined Respondent Gann from future violations of Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act), and Exchange Act Rule 10b-5. Additionally, the district court ordered Respondent Gann to disgorge $56,640 in ill-gotten gains and assessed a civil penalty of $50,000. The Initial Decision concludes that, pursuant to Section 15(b)(6) of the Exchange Act and Section 203(f) of the Investment Advisers Act of 1940, it is in the public interest to bar Respondent Gann from association with any broker or dealer, or investment adviser. (Initial Decision No. 355; File No. 3-13009)

In the Matter of Douglas G. Frederick

An Administrative Law Judge has issued an Initial Decision in the matter of Douglas G. Frederick. The Initial Decision finds that the allegations in the Order Instituting Proceedings, that Douglas G. Frederick was permanently enjoined from violations of the antifraud provisions of the securities statutes, are true. Based on these findings, the Administrative Law Judge found it to be in the public interest to bar Douglas G. Frederick from association with any broker or dealer. (Initial Decision No. 356; File No. 3-13004)

SEC Charges Investment Adviser with Cherry-Picking

On September 9, the Commission charged James C. Dawson with securities fraud and investment adviser fraud, for orchestrating a cherry-picking scheme in which he allocated profitable trades to his personal account at the expense of his clients. Dawson is the investment adviser to a hedge fund, Victoria Investors, and individual clients.

The Commission's complaint, filed in the U.S. District Court for the Southern District of New York, alleges that from April 2003 through October 2005, Dawson allocated profitable trades to his personal account by purchasing securities throughout the day in a single account and allocating the trades amongst his clients and his personal account after he saw whether the trades were profitable. The Commission's complaint further alleges that Dawson used Victoria Investors' funds to pay for personal and family expenses. Dawson did not tell his clients -Victoria Investors or his individual clients - about his cherry-picking scheme, and did not tell Victoria Investors that he was using fund assets for his personal expenses.

The Commission alleges that Dawson violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Sections 206(1) and 206(2) of the Investment Advisers Act. The Commission seeks an order permanently enjoining Dawson from violating these provisions of the federal securities laws, and seeks disgorgement of ill-gotten gains and losses avoided, plus prejudgment interest, and civil penalties against Dawson. [SEC v. James C. Dawson, 08 Civ. 7841 (SDNY) (WCC)] (LR-20707)

Court Permanently Enjoins Canton, Georgia Resident William Boston, Jr. from Violating Certain Antifraud and Registration Provisions

The Commission announced that on Aug. 18, 2008, Judge Elaine Bucklo of the United States District Court for the Northern District of Illinois entered an order permanently enjoining William K. Boston, Jr. (Boston) of Canton, Georgia from violating certain of the antifraud and registration provisions of the federal securities laws. The order, entered with Boston's consent, permanently enjoins him from violating Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933, Sections 10(b) and 15(a) of the Securities Exchange Act of 1934 and Rules 10b-5 and 10b-10 promulgated thereunder, and from aiding and abetting violations of Rule 10b-10 of the Exchange Act.

The SEC's complaint in this matter charges that Michael E. Kelly and 25 other defendants, including Boston and his former business, Century Estate Planning, Inc. (Century Estate Planning), participated in a massive fraud on U.S. investors that involved the offer and sale of securities in the form of Universal Lease investments. Universal Leases were structured as timeshares in several hotels in Cancun, Mexico, coupled with a pre-arranged rental agreement that promised investors a high, fixed rate of return. The SEC's complaint alleges that from 1999 until 2005, Kelly and others, including Boston and Century Estate Planning, raised at least $428 million through the Universal Lease scheme from investors throughout the United States, with more than $136 million of the funds invested coming from IRA accounts. The SEC further alleges that a nationwide network of unregistered salespeople who sold the Universal Leases, including Boston and Century Estate Planning, collected undisclosed commissions totaling more than $72 million. The SEC also alleges that Kelly and others ran the scheme from Cancun, Mexico, through a number of foreign entities in Mexico and Panama. According to the SEC's complaint, Kelly and others told investors that Universal Leases would generate guaranteed income through the leasing of investor timeshares by a large, independent leasing agent. In fact, the complaint alleges the leasing agent was a small Panamanian travel agency controlled by Kelly and for most of the scheme its payments to investors came from accounts funded by money raised from new investors. Further, the complaint alleges that Kelly and others, including Boston and Century Estate Planning, failed to disclose key facts about the Universal Lease investments, including the risks of the investments and that more than $72 million in investor funds were used to pay commissions as high as 27% to the selling brokers. The SEC continues to pursue its claims against Boston for disgorgement and civil penalties. The SEC's action against the remaining defendants is also pending.

For additional information, see Litigation Release Nos. 20267 (Sept. 5, 2007), 20573 (May 14, 2008), 20578 (May 15, 2008), 20579 (May 15, 2008), 20664 (July 31, 2008) and 20679 (Aug. 12, 2008 [SEC v. Michael E. Kelly, et al., Civil Action No. 1:07-CV-4979, USDC (N.D. Ill.)] (LR-20708)

Court Permanently Enjoins Weatherford, Texas Resident Carl Lee and His Company Carl Lee and Associates, Inc. from Violating Certain Antifraud and Registration Provisions

The Commission announced that on September 5, Judge Elaine Bucklo of the United States District Court for the Northern District of Illinois entered an order permanently enjoining Carl Q. Lee (Lee) of Weatherford, Texas and Carl Lee and Associates, Inc. (Lee Associates), Lee's business, from violating certain of the antifraud and registration provisions of the federal securities laws. The order, entered with Lee and Lee Associates' consent, permanently enjoins them from violating Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933, Sections 10(b) and 15(a) of the Securities Exchange Act of 1934, and Rules 10b-5 and 10b-10 promulgated thereunder, and enjoins Lee from aiding and abetting violations of Rule 10b-10 of the Exchange Act.

The SEC's complaint in this matter charges that Michael E. Kelly and 25 other defendants, including Lee and Lee Associates, participated in a massive fraud on U.S. investors that involved the offer and sale of securities in the form of Universal Lease investments. Universal Leases were structured as timeshares in several hotels in Cancun, Mexico, coupled with a pre-arranged rental agreement that promised investors a high, fixed rate of return. The SEC's complaint alleges that from 1999 until 2005, Kelly and others, including Lee and Lee Associates, raised at least $428 million through the Universal Lease scheme from investors throughout the United States, with more than $136 million of the funds invested coming from IRA accounts. The SEC further alleges that a nationwide network of unregistered salespeople who sold the Universal Leases, including Lee and Lee Associates, collected undisclosed commissions totaling more than $72 million. The SEC also alleges that Kelly and others ran the scheme from Cancun, Mexico, through a number of foreign entities in Mexico and Panama. According to the SEC's complaint, Kelly and others told investors that Universal Leases would generate guaranteed income through the leasing of investor timeshares by a large, independent leasing agent. In fact, the complaint alleges the leasing agent was a small Panamanian travel agency controlled by Kelly and for most of the scheme its payments to investors came from accounts funded by money raised from new investors. Further, the complaint alleges that Kelly and others, including Lee and Lee Associates, failed to disclose key facts about the Universal Lease investments, including the risks of the investments and that more than $72 million in investor funds were used to pay commissions as high as 27% to the selling brokers. The SEC continues to pursue its claims against Lee and Lee Associates for disgorgement and civil penalties. The SEC's action against the remaining defendants is also pending.

For additional information, see Litigation Release Nos. 20267 (Sept. 5, 2007), 20573 (May 14, 2008), 20578 (May 15, 2008), 20579 (May 15, 2008), 20664 (July 31, 2008) and 20679 (Aug. 12, 2008) [SEC v. Michael E. Kelly, et al., Civil Action No. 1:07-CV-4979 (N.D. Ill.)] (LR-20709)

SEC Charges Former Embarcadero Executives in Stock Options Backdating Scheme

The Commission today charged three former senior executives of Embarcadero Technologies, Inc., alleging that they fraudulently backdated stock option grants to employees at the San Francisco business software company and reported false financial information to shareholders.

The Commission's complaints, filed in federal district court in San Francisco, allege that former CEO, President and Chairman Stephen R. Wong, former CFO Raj P. Sabhlok, and former Controller Michael C. Pattison concealed millions of dollars in compensation expenses associated with valuable "in-the-money" options secretly granted to company employees. The Commission alleges that the three executives allowed Embarcadero to avoid reporting expenses for these options by backdating paperwork to make it appear as if the options had been granted on an earlier date, when the stock was trading at a lower price. According to the Commission's complaints, Embarcadero made hundreds of backdated stock option grants during 16 consecutive quarters. As a result, the company significantly overstated its net income (or understated its net loss) from 2000 through 2005.

Wong, without admitting or denying the Commission's allegations, consented to a permanent injunction against violations of Section 17(a) of the Securities Act of 1933 and Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B), 13(b)(5) and 14(a) of the Securities Exchange Act of 1934 and Rules 10b-5, 12b-20, 13a-1, 13a-11, 13a-13, 13a-14, 13b2-1, 13b2-2, and 14a-9 thereunder. Wong also agreed to pay a $250,000 civil penalty.

The Commission's litigated action against Sabhlok and Pattison charges both with violating 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 and 13b2-1 thereunder, and with aiding and abetting violations of Sections 13(a), 13(b)(2)(A), 13(b)(2)(B), and 14(a) of the Securities Exchange Act of 1934 and Rules 12b-20, 13a-1, 13a-11, 13a-13 and 14a-9 thereunder. Sabhlok is also charged with violating Section 16(a) of the Securities Exchange Act of 1934 and Rules 16a-3, 13a-14, and 13b2-2. The Commission seeks permanent injunctions, civil monetary penalties, and disgorgement against both Sabhlok and Pattison, and forfeiture of bonuses and stock sales pursuant to Section 304 of the Sarbanes-Oxley Act and an order barring against acting as an officer or director of a public company against Sabhlok. [SEC v. Stephen R. Wong, Case No. CV 08 4239 CW, N.D. Cal.]; [SEC v. Raj P. Sabhlok and Michael C. Pattison, Case No. C 08 4238 BZ, N.D. Cal] (LR-20710)

Offshore Hacker Receives Two Year Sentence for His Role in Scheme to Intrude into Online Accounts and Manipulate Market

The Commission today announced that on September 9, U.S. District Judge Laurie Smith sentenced Thirugnanam Ramanathan, a native of Chennai, India, and legal resident of Malaysia, to serve two years in prison, followed by 3 years of supervised release, and ordered him to pay restitution in the amount of $362,247. Ramanthan was arrested in Hong Kong and extradited to the United States on May 25, 2007. On July 2, 2008, Ramanathan pleaded guilty to one count of conspiracy to commit wire fraud, securities fraud, computer fraud and aggravated identity theft.

In January 2007, Ramanthan was indicted by a federal grand jury in Omaha along with his brother Chockalingam Ramanathan and Jaisankar Marimuthu, also residents of Chennai. Marimuthu and Chockalingam Ramanathan were charged with one count of conspiracy, eight counts of computer fraud, six counts of wire fraud, two counts of securities fraud and six counts of aggravated identity theft. Marimuthu is currently being detained in a Hong Kong prison awaiting extradition to the U.S. following his conviction there on similar offenses but related instead to the Hong Kong stock market. Chockalingam Ramanathan remains at large.

On March 12, 2007, the SEC filed a complaint in the United States District Court for the District of Nebraska charging all three Indian nationals with participating in a fraudulent scheme to manipulate the prices of at least fourteen securities through the unauthorized use of other people's online brokerage accounts.

The Commission's complaint alleges that, between July and November 2006, Jaisankar Marimuthu, Chockalingam Ramanathan and Thirugnanam Ramanathan hijacked the online brokerage accounts of unwitting investors using stolen usernames and passwords. Prior to intruding into these accounts, the Defendants acquired positions in the securities of at least thirteen issuers and options on shares of another issuer. Then, without the account holders' knowledge, and using the victims' own accounts and funds, the Defendants placed scores of unauthorized buy orders at above-market prices. After these unauthorized buy orders were placed, the Defendants sold the positions held in their own accounts at the artificially inflated prices netting unlawful trading profits of at least $121,500. These transactions created the appearance of legitimate trading activity and pumped up the share price of the fourteen securities.

The Commission's action charges the Defendants with violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and seeks permanent injunctive relief, disgorgement and civil money penalties. [SEC v. Jaisankar Marimuthu, Chockalingam Ramanathan and Thirugnanam Ramanathan, Civil Action No. 8:07CV94 (D. Neb.)] (LR-20711)

INVESTMENT COMPANY ACT RELEASES

Phoenix Equity Trust, et al.

A notice has been issued giving interested persons until September 26 to request a hearing on an application filed by Phoenix Equity Trust, et al. for an order granting an exemption from Section 15(a) of the Investment Company Act and Rule 18f-2 under the Act. The order would permit certain registered open-end management investment companies to enter into and materially amend subadvisory agreements without shareholder approval. (Rel. IC-28375 - September 3)

SELF-REGULATORY ORGANIZATIONS

Immediate Effectiveness of Proposed Rule Changes

A proposed rule change filed by Chicago Board Options Exchange, (SR-CBOE-2008-93) relating to temporary membership status and interim trading permit access fees has become effective under Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of September 8. (Rel. 34-58456)

A proposed rule change filed by Chicago Board Options Exchange, (SR-CBOE-2008-91) amending CBOE Rule 52.3 has become effective pursuant to Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of September 8. (Rel. 34-58462)

Proposed Rule Changes

The Commission issued notice of filing of a proposed rule change (SR-CBOE-2008-90) submitted by the Chicago Board Options Exchange pursuant to Rule 19b-4 under the Securities Exchange Act of 1934 related to trades in restricted classes. Publication is expected in the Federal Register during the week of September 8. (Rel. 34-58460)

A proposed rule change (SR-AMEX-2008-53) has been filed by the American Stock Exchange, regarding a proposal to amend Amex Rules 925 (Options Confirmations) and 921 (Opening of Options Accounts). Publication is expected in the Federal Register during the week of September 8. (Rel. 34-58466)

Accelerated Approval of Proposed Rule Change

The Commission granted approval on an accelerated basis to a proposed rule change (SR-NYSE-2008-77) submitted by New York Stock Exchange to amend its rule governing Equity-Linked Debt Securities to permit the listing of Equity-Linked Debt Securities linked to baskets of up to thirty underlying securities and to provide for greater flexibility in listing criteria. Publication is expected in the Federal Register during the week of September 8. (Rel. 34-58467)

SECURITIES ACT REGISTRATIONS

• Latest Securities Act registrations (TXT)

RECENT 8K FILINGS

• Latest 8-K filings (TXT)

http://www.sec.gov/news/digest/2008/dig090908.htm