SEC News Digest

COMMISSION ANNOUNCEMENTS

SEC Roundtable on More Transparent Disclosure to Address Lessons of Current Credit Crisis

The Securities and Exchange Commission today announced the agenda for Wednesday's roundtable on providing more transparency to investors that will include discussion of lessons from the current credit crisis. Among other issues, panelists will address better ways to explain complex financial instruments to investors and the marketplace, and will propose ways to provide investors with more transparent, useful, and timely access to high quality information. The roundtable is part of the SEC's 21st Century Disclosure Initiative (www.sec.gov/disclosureinitiative) that is fundamentally rethinking disclosure.

Panel One: The Market's Use of Disclosure Information and the SEC's Disclosure System

This panel will explore whether the current system of collecting and filing data for SEC disclosure obligations has kept pace with the market. It will examine how investors can get all the information they need to make increasingly complex investment decisions. It will also consider the data, technology, and processes that companies and other filers use in satisfying their SEC disclosure obligations. The panel will compare the needs and uses of investors and companies to the capabilities of the SEC's disclosure system in an effort to better understand any gaps and inefficiencies that can lead to inaccuracies, delays, and unnecessary complexity.

• John Bajkowski, Vice President and Senior Financial Analyst, American Association of Individual Investors
• Robert Sorrentino, Director of Accounting Policy and External Reporting, Xerox Corp.
• David Copenhafer, former Director of EDGAR Services, Bowne & Co., Inc.
• Glenn Doggett, Policy Analyst, CFA Institute Centre for Financial Market Integrity
• Paul Haaga, Jr., Vice Chairman, Capital Research and Management Co.
• Kara Jenny, Chief Financial Officer, Bluefly, Inc.
• Timothy Thornton, Principal, Web Services, The Vanguard Group, Inc.

Panel Two: Modernizing the SEC's Disclosure System

This panel will consider how the SEC could better organize and operate its disclosure system so that investors could have better access to high-quality information and companies could enjoy efficiencies. In particular, the panel will discuss ways to structure disclosure data so investors can more effectively search for company data and compare investment options. The panel will describe a possible "company file system," in which core company information would be collected in a central structured data file, and will also discuss other approaches that harness technology to better serve investors and the markets.

• Alan Beller, Partner, Cleary Gottlieb Steen & Hamilton LLP
• Steven Bochner, Partner, Wilson Sonsini Goodrich & Rosati
• Esther Dyson, Chairman, EDventure Holdings
• Joseph Grundfest, Professor of Law, Stanford Law School
• Eric Roiter, Lecturer on Law, Harvard University Law School and Boston University School of Law
• Liv Watson, Member, Board of Directors, IRIS
• Hillary Sale, Chair in Corporate Finance and Law, University of Iowa College of Law
• Douglas Chia, Senior Counsel and Assistant Corporate Secretary, Johnson & Johnson

Moderators:

• John White, Director of SEC's Division of Corporate Finance
• Andrew Donohue, Director of SEC's Division of Investment Management
• Jim Kaput, Counsel to 21st Century Disclosure Initiative
• Matthew Reed, Assistant Director of 21st Century Disclosure Initiative

The SEC's roundtable will be held on Wednesday, October 8 in the auditorium of the SEC's Washington, D.C., headquarters at 100 F Street, NE from 9 a.m. until approximately 1 p.m. The roundtable will be open to the public on a first-come, first-served basis. It will be webcast live on the SEC's Web site, and an archived version of the webcast will later be available for free download.

The Commission welcomes feedback regarding any of the topics to be addressed at the roundtable, and has issued a formal request for public comment. The Commission is particularly interested in comments responding to these questions:

1. General Issues
   1. Should the Commission make changes to its current forms-based disclosure system? Please explain why or why not.
   2. What are the key issues to be considered in the review of the Commission's disclosure system? Are particular aspects of the system and process especially useful and well executed, and are particular aspects especially in need of improvement?
   3. What are the purposes of issuer disclosure from the perspective of investors, filers, and regulators?
2. Specific Issues
   1. The Market's Use of Disclosure Information
      1. How do operating and investment companies collect, summarize, analyze, file, and disseminate the information that is submitted to the Commission?
      2. How do operating and investment companies submit disclosure and reporting information to the Commission? How have these methods changed during the last 15 years, particularly after filing via EDGAR was fully implemented? How could the Commission's system be changed to reduce burdens and create efficiencies, consistent with investor protection?
      3. How do investors retrieve and use the disclosure information that companies submit to the Commission? How could this information be better presented, and more easily retrieved and used through technological improvements?
      4. What disclosure information that companies submit to the Commission is used by investors to make investment decisions? Is any information that companies submit to the Commission not used? What information that is not required to be filed or furnished with the Commission do investors and others use to make investment decisions or give investment advice?
   2. The Commission's Current Disclosure System

      Does the Commission's current disclosure system present difficulties? What difficulties can be attributed to technological problems? Which can be attributed to regulatory or statutory problems?

   3. Modernizing the Commission's Disclosure System
      1. How should the Commission's disclosure system be modernized? One possibility is a company file system. What alternative systems should be considered? What different or additional benefits might these alternatives provide?
      2. How should a modern disclosure system, such as a company file system, be organized, and how could it improve the way disclosure information is submitted and used?
      3. What features should any modernized disclosure system provide in order to serve the needs of filers, investors, regulators, and other users of information? Why?
      4. Data tagging using XBRL, or eXtensible Business Reporting Language, is one way, but we understand there are other ways to structure data. What alternative ways could be used by companies to submit structured data to the Commission?
      5. What are the costs and benefits to investors and other market participants of structuring non-financial disclosures, including, for example, data tagging?
      6. What time frame would be appropriate for implementing a company file system?
      7. What benefits and costs to preparers and users of information would accompany the implementation of modernized disclosure system, such as a company file system, that requires all, or virtually all, data to be filed in a structured format? Would such a system be more useful to some investors, such as small or less sophisticated investors? Would some investors be harmed by such a system? Would larger companies benefit more than smaller companies? Would costs fall disproportionately on one group of companies?
      8. Are any changes to the Commission's disclosure regulations required for a transition to a company file system? How could these changes be identified?

The information that is submitted for comment will become part of the public record of the roundtable. All submissions received will be posted without change. The SEC does not edit personal identifying information from submissions. Only information desired to be shared publicly should be submitted.

Submissions to the Commission may be provided by either of the following methods:

Electronic submission options:

Use the Commission's Internet Submission Form, or send an e-mail to rule-comments@sec.gov. Please include File Number 4-567 on the subject line.

Paper submissions:

Send paper submissions in triplicate to the Secretary of the Securities and Exchange Commission, 100 F Street, NE, Washington, D.C. 20549-1090. All submissions should refer to File Number 4-567. This file number should be included on the subject line if e-mail is used. To help process and review submissions more efficiently, please use only one method. The Commission will post all submissions on its Web site at www.sec.gov.

For more information, contact:

Dr. William Lutz, Director of the SEC's 21st Century Disclosure Initiative
202-551-4144

James Kaput, Counsel to 21st Century Disclosure Initiative
202-551-2096

Matthew Reed, Assistant Director of 21st Century Disclosure Initiative
202-551-2607

(Press Rel. 2008-241)

SEC Commences Work on Congressionally Mandated Study on Accounting Standards

The Securities and Exchange Commission today announced additional details on the process and initial steps that the SEC has undertaken to conduct a study on "mark-to-market" accounting, as authorized by Sec. 133 of the Emergency Economic Stabilization Act of 2008, signed into law by President Bush last Friday.

Under legislation enacted last week to help stabilize financial markets, the SEC is required to conduct a study of "mark-to-market" accounting. The study is to be completed by Jan. 2, 2009, in consultation with the Secretary of the Treasury and the Board of Governors of the Federal Reserve System. Under the terms of the EESA, the study will focus on:

1. The effects of such accounting standards on a financial institution's balance sheet

2. The impacts of such accounting on bank failures in 2008
3. The impact of such standards on the quality of financial information available to investors
4. The process used by the Financial Accounting Standards Board in developing accounting standards
5. The advisability and feasibility of modifications to such standards
6. Alternative accounting standards to those provided in [Financial Accounting Standards Board] Statement Number 157

SEC Chairman Christopher Cox announced that James Kroeker, Deputy Chief Accountant for Accounting at the SEC, will serve as staff director for the study. As Deputy Chief Accountant, Mr. Kroeker is responsible for resolution of accounting issues, rulemaking projects, and oversight of private sector accounting standard-setting efforts. Prior to his current position, Mr. Kroeker was a partner at Deloitte and Touche, LLP in the firm's National Office Accounting Services Group, where he was responsible for providing consultation and support regarding the implementation, application, communication and development of accounting standards. Mr. Kroeker also served as a Practice Fellow at the Financial Accounting Standards Board, where he assisted in the development of accounting guidance related to evolving accounting issues.

The SEC also announced that it is scheduling public roundtables to obtain input into the study from investors, accountants, standard setters, business leaders, and other interested parties. (Press Rel. 2008-242)

ENFORCEMENT PROCEEDINGS

In the Matter of Continental Beverage and Nutrition Inc.

An Administrative Law Judge issued an Order Making Findings and Imposing Sanctions by Default (Default Order) in Continental Beverage and Nutrition, Inc., Admin. Proc. No. 3-13158. The Default Order finds that Continental Beverage and Nutrition, Inc. (Continental), violated Section 13(a) of the Securities Exchange Act of 1934 (Exchange Act) and Exchange Act Rules 13a-1 and 13a-13 by failing to file required periodic reports with the Securities and Exchange Commission. Acting pursuant to Section 12(j) of the Exchange Act, the administrative law judge revoked the registrations of each class of Continental's securities. (Rel. 34-58742; File No. 3-13158)

SEC Charges Former Vice President at Restoration Hardware and Three Friends in Insider Trading Scheme

The SEC today charged a former vice president of national home furnishing retailer Restoration Hardware with insider trading for tipping three friends that the company was about to be acquired, enabling them to make more than $900,000 in unlawful profits when public announcement of the subsequent merger caused the stock price to soar.

The SEC alleges that Ciriaco "Eric" Rivor of Millbrae, Calif., who was Vice President of Treasury at Corte Madera, Calif.-based Restoration Hardware, learned in mid-2007 that the company was about to be acquired by a private equity firm at a substantial premium. Rivor allegedly passed the confidential, non-public information to friends Emmanuel Axiaq of San Carlos, Calif., and Steven Lusardi of San Jose. Rivor told Emmanuel Axiaq to pass the information to his father, Francis Axiaq of Millbrae. The SEC alleges that Rivor instructed his friends to limit the size of their Restoration Hardware stock purchases to prevent detection.

According to the SEC's complaint, filed in federal district court in San Francisco, Emmanuel Axiaq and Lusardi complied with Rivor's instruction to limit the size of their stock purchases. Meanwhile, Francis Axiaq spent the following weeks amassing nearly 250,000 shares of Restoration Hardware stock. When Restoration Hardware publicly announced the acquisition on Nov. 8, 2007, its stock price soared more than 140 percent, from $2.68 to $6.44 per share. The SEC's complaint alleges that Emmanuel Axiaq and Lusardi profited by $29,539 and $4,398, respectively, on their stock purchases. The announcement gave Francis Axiaq an illicit potential profit of nearly $900,000.

Rivor, Lusardi, and Emmanuel Axiaq, without admitting or denying the allegations in the SEC's complaint, have agreed to a permanent injunction from further violation of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. Rivor, who did not personally trade on the information, has agreed to pay a $68,000 penalty. Lusardi has agreed to pay a total of $8,901, including disgorgement of his trading profits, prejudgment interest and a penalty equal to his trading profits. Emmanuel Axiaq has agreed to pay a total of $90,249, including $30,249 in disgorgement of his trading profits and prejudgment interest and a penalty of $60,000.

In a non-settled enforcement action, Francis Axiaq is charged with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The SEC is seeking a permanent injunction, disgorgement, financial penalties, and other relief. [SEC v. Francis Elias Axiaq, Ciriaco Israel Rivor, Emmanuel Mario Axiaq and Steven Craig Lusardi, Case No. C-08-CV-4637 (CRB) (N.D. Cal.)] (LR-20774)

SEC Charges Beverly Hills Firm and Principal for Illegal Short Selling

The Commission announced today that it filed an injunctive action in the United States District Court for the Central District of California against Lion Gate Capital, Inc. (Lion Gate) and its principal, Kenneth Rickel alleging illegal short selling. Rickel, who resides in Los Angeles, California, is the president, sole owner, and sole employee of Lion Gate, which is in the business of trading securities and has its principal place of business in Beverly Hills, California. According to the complaint, Lion Gate and Rickel realized profits of at least $207,291 from their illegal trading.

According to the complaint, from January 2005 through September 2006, Lion Gate and Rickel allegedly used shares purchased in fourteen registered public offerings to cover short sales that occurred during the five business days before the pricing of those offerings (the restricted period). The Commission's complaint alleges that this conduct violates Rule 105 of Regulation M under the Securities Exchange Act of 1934. The SEC alleges that in each instance, Lion Gate and Rickel engaged in transactions that created the appearance that the shares covering the restricted period short sales were purchased on the open market. According to the complaint, Rickel made every trading decision and placed every one of the violative trades.

At the time of the conduct in the complaint, Rule 105 prohibited covering a short sale made during the restricted period with securities purchased in a registered offering. Rule 105 was designed to prevent manipulative short selling prior to registered public offerings and to promote offering prices based upon open market prices, as determined by supply and demand rather than artificial forces. Short sellers who violated Rule 105 largely could avoid market risk by using shares purchased at a discount in a registered offering to cover restricted-period short sales. The Commission seeks permanent injunctions against each defendant, and disgorgement, prejudgment interest, and civil penalties against each defendant.

The Complaint alleges that Lion Gate and Rickel violated Rule 105 of Regulation M under the Securities Exchange Act of 1934. The Commission seeks permanent injunctions against each defendant, and disgorgement, prejudgment interest, and civil penalties against each defendant. [SEC v. Lion Gate Capital, Inc., et al., Case No. CV 08-06574 (DSF) (MANx) (C.D. Cal.)] (LR-20775)

INVESTMENT COMPANY ACT RELEASES

Global X Funds
Global X Management Company LLC

An order has been issued on an application filed by Global X Funds and Global X Management Company LLC. The order permits: (a) certain registered open-end management investment companies and their series to issue shares (Shares) that can be redeemed only in large aggregations; (b) secondary market transactions in Shares to occur at negotiated prices; (c) dealers to sell Shares to purchasers in the secondary market unaccompanied by a prospectus when prospectus delivery is not required by the Securities Act of 1933; (d) certain affiliated persons of the series to deposit securities into, and receive securities from, the series; (e) certain series to pay redemption proceeds more than seven days after the tender of Shares for redemption under certain circumstances; and (f) certain registered management investment companies and unit investment trusts outside of the same group of investment companies as the series to acquire Shares. (Rel. IC-28433 - October 3)

Rafferty Asset Management, LLC
Direxion Shares ETF Trust

An order has been issued on an application filed by Rafferty Asset Management, LLC and Direxion Shares ETF Trust. The order permits: (a) an open-end management investment company and its series to issue shares that can be redeemed only in large aggregations; (b) secondary market transactions in shares of the series to occur at negotiated prices; (c) dealers to sell the series' shares to purchasers in the secondary market unaccompanied by a prospectus when prospectus delivery is not required by the Securities Act of 1933; (d) certain series to pay redemption proceeds, under certain circumstances, more than seven days after the tender of shares for redemption and; (e) certain affiliated persons of the series to deposit securities into, and receive securities from, the series in connection with the purchase and redemption of large aggregations of shares. (Rel. IC-28434 - October 6)

SELF-REGULATORY ORGANIZATIONS

Approval of Proposed Rule Change

The Commission approved a proposed rule change filed by the American Stock Exchange (SR-Amex-2008-60) related to margin requirements for fixed return options. Publication is expected in the Federal Register during the week October 13. (Rel. 34-58716)

Proposed Rule Change

The Commission issued notice of a proposed rule change submitted by NYSE Arca (SR-NYSEArca-2008-104) pursuant to Rule 19b-4 under the Securities Exchange Act of 1934 relating to continued listing criteria applicable to Equity Linked Notes and "Other Securities." Publication is expected in the Federal Register during the week of October 6. (Rel. 34-58720)

Immediate Effectiveness of Proposed Rule Changes

A proposed rule change filed by the NASDAQ Stock Market relating to order routing (SR-NASDAQ-2008-079) 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 October 6. (Rel. 34-58721)

A proposed rule change (SR-NSX-2008-17) filed by the National Stock Exchange to amend Exchange Rule 16 and NSX Fee Schedule concerning liquidity-adding rebates and market data credits for Order Delivery transactions has become effective under Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected to be made in the Federal Register during the week of October 6. (Rel. 34-58731)

A proposed rule change (SR-Phlx-2008-67) filed by the NASDAQ OMX PHLX relating to clarification regarding capitalization-weighting of indexes 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 October 6. (Rel. 34-58733)

A proposed rule change filed by Chicago Board Options Exchange (SR-CBOE-2008-104) 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 October 6. (Rel. 34-58735)

Accelerated Approval of Proposed Rule Change

The Commission granted accelerated approval to a proposed rule change (SR-FINRA-2008-013), as modified by Amendment No. 1 thereto, filed by the Financial Industry Regulatory Authority relating to amending NASD rule 2220 (Options Communications with the Public). Publication is expected in the Federal Register during the week of October 6. (Rel. 34-58738)

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http://www.sec.gov/news/digest/2008/dig100708.htm