SEC News Digest

COMMISSION ANNOUNCEMENTS

SEC Revamping Process for Reviewing Whistleblower Complaints and Enforcement Tips

Securities and Exchange Commission Chairman Mary L. Schapiro announced today that the agency is moving to improve the handling of whistleblower complaints and enforcement tips in order to better protect investors.

The SEC has enlisted the services of the Center for Enterprise Modernization, a federally funded research and development center operated by the MITRE Corporation, to begin immediately working with the SEC to conduct a comprehensive review of internal procedures used to evaluate tips, complaints, and referrals, and is seeking to establish a more centralized process that will more effectively identify valuable leads for potential enforcement action as well as areas of high risk for compliance examinations.

"As we continue to reinvigorate our enforcement efforts as an agency, it's vitally important that we move very aggressively to improve staff's use of tips and complaints from investors and whistleblowers," said Chairman Schapiro. "This comprehensive review will help us identify and improve areas within the agency where gaps or lack of communication may cause breakdowns that prevent us from ensuring swift and vigorous enforcement."

The SEC typically receives hundreds of thousands of tips and complaints per year from investors and the general public as well as from those the SEC regulates, including broker-dealers, investment advisers, and public companies. These communications come through a variety of means, including Web forms, e-mail, phone calls, mail, messengers, and faxes. Tips and complaints can come into several different divisions and offices within the SEC's Washington D.C. headquarters, and each of the SEC's 11 regional offices around the country. The SEC also receives referrals from self-regulatory organizations (SROs), other U.S. government agencies, and foreign regulators.

The SEC's review will scrutinize the agency's processes for receiving, tracking, analyzing, and acting upon the tips, complaints, and referrals from these outside sources. The goal of the review is to improve the efficiency, effectiveness, and overall management of how the agency addresses tips, complaints, and referrals, and how SEC staff utilizes the information received to protect investors.

The Center for Enterprise Modernization of the MITRE Corporation will help the SEC identify ways to improve the quality and efficiency of the agency's current procedures, and to recommend potential technology solutions that can assist the SEC staff in more effectively managing and utilizing tips, complaints, and referrals. The MITRE Corporation (www.mitre.org) is a non-profit national organization that provides systems engineering, research and development, and information technology support to the government. (Press Rel. 2009-44)

ENFORCEMENT PROCEEDINGS

Delinquent Filers' Stock Registrations Revoked

The registrations of the stock of Respondents Jansko, Inc., JG Industries, Inc., The Jockey Club, Inc., Juina Mining Corp., Inc. (n/k/a AC Energy, Inc.), JumboSports, Inc., Jumpin' Jax Corp., Just Like Home, Inc., and Just Toys, Inc., have been revoked. Each had repeatedly failed to file required annual and quarterly reports with the Securities and Exchange Commission. Thus, each violated a crucial provision of the federal securities laws that requires public corporations to publicly disclose current, accurate financial information so that investors may make informed decisions. The revocations were ordered in an administrative proceeding before an administrative law judge. (Rel. 34-59511; File No. 3-13368)

In the Matter of Victor P. Machado

On March 5, the Commission issued an Order Instituting Administrative Proceedings Pursuant to Section 15(b) of the Securities Exchange Act of 1934, Making Findings, and Imposing Remedial Sanctions (Order) against Victor P. Machado. The Order finds that Machado was a former fixed income trader at two related entities, Leumi Investment Services Inc. (LISI), a registered broker-dealer, and Bank Leumi USA (collectively referred to as Leumi). The Order finds that on Feb. 27, 2009, a final judgment was entered by consent against Victor P. Machado, permanently enjoining him from future violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder, and for aiding and abetting LISI's violations of Section 17(a) of the Exchange Act and Rule 17a-3 thereunder, in the civil action entitled, Securities and Exchange Commission v. Victor P. Machado and Frank Lu, Civil Action Number 09-cv-01711 (RMB), in the United States District Court for the Southern District of New York.

The Order finds that the Commission's complaint alleged that, from May 2003 through mid-August 2004, Machado and Frank Lu, a former salesperson at Oppenheimer & Co. Inc. (OPCO), a registered broker-dealer and investment adviser, engaged in a scheme to direct Leumi's securities order flow to OPCO in exchange for secret gratuities and entertainment that Lu provided to Machado. The complaint also alleged that as part of the scheme, and in violation of Machado's duties to Leumi's customers, Machado routinely directed a substantial flow of orders to OPCO for execution at prices that were favorable to OPCO and detrimental to Leumi's own customers. The complaint further alleged that as a result of Machado's and Lu's conduct, Leumi's customers were harmed by approximately $1.1 million.

Based on the above, the Order bars Machado from association with any broker or dealer. Machado consented to the issuance of the Order without admitting or denying any of the findings in the Order, except as to jurisdiction over him, the subject matter of these proceedings, and the entry of the final judgment against him, which he admitted. [SEC v. Victor P. Machado and Frank Lu, Civil Action No. 09-cv-01711, USDC, SDNY (RMB)] (See also LR-20909). (Rel. 34-59513; File No. 3-13397)

In the Matter of Frank Lu

On March 5, the Commission issued an Order Instituting 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, Making Findings, and Imposing Remedial Sanctions (Order) against Frank Lu, a former salesperson at Oppenheimer & Co. Inc. (OPCO), a registered broker-dealer and investment adviser. The Order finds that on February 27, 2009, a final judgment was entered by consent against Lu, permanently enjoining him from future 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, in the civil action entitled, Securities and Exchange Commission v. Victor P. Machado and Frank Lu, Civil Action Number 09-cv-01711 (RMB), in the United States District Court for the Southern District of New York.

The Order finds that the Commission's complaint alleged that, from May 2003 through mid-August 2004, Lu and Victor P. Machado, a former trader at two related entities, Leumi Investment Services Inc., a registered broker-dealer, and Bank Leumi USA, (collectively referred to as Leumi), engaged in a scheme to direct Leumi's securities order flow to OPCO in exchange for secret gratuities and entertainment that Lu provided to Machado. The complaint also alleged that Lu was a knowing participant in this scheme as he provided Machado with secret gratuities and entertainment to induce Machado to direct Leumi's order flow to OPCO. It was further alleged that Lu benefited from this scheme because he obtained increased compensation as a result of the increased order flow from Machado. The complaint further alleged that as a result of Lu's and Machado's conduct, Leumi's customers were harmed by approximately $1.1 million.

Based on the above, the Order bars Lu from association with any broker, dealer, or investment adviser. Lu consented to the issuance of the Order without admitting or denying any of the findings in the Order, except as to jurisdiction over him, the subject matter of these proceedings, and the entry of the final judgment against him, which he admitted. [SEC v. Victor P. Machado and Frank Lu, Civil Action No. 09-cv-01711, USDC, SDNY (RMB)] (See also LR-20909). (Rel. 34-59514; File No. 3-13398)

SEC v. Scott A. Livengood, John W. Tate, and Randy S. Casstevens

The Commission announced that on March 4, 2009, it filed a Complaint in the United States District Court for the Middle District of North Carolina against Scott A. Livengood (Livengood), John W. Tate (Tate) and Randy S. Casstevens (Casstevens). The Complaint alleges that Livengood is a resident of Winston-Salem, North Carolina, and was the Chairman, President, and Chief Executive Officer of Krispy Kreme Doughnuts, Inc. (Krispy Kreme or the Company). The Complaint further alleges that Tate is a resident of Winston-Salem, North Carolina, and was the Chief Operating Officer of Krispy Kreme.

The Complaint also alleges that Casstevens is a resident of Winston-Salem, North Carolina, and was the Chief Financial Officer of Krispy Kreme. According to the Complaint, Krispy Kreme is a public issuer and a nationwide doughnut retailer and franchisor based in North Carolina.

The Complaint alleges that between February 2003 and May 2004, the Company inflated its quarterly and annual earnings and omitted to disclose the impact of certain adjustments on its ability to achieve what had become a prime benchmark of its historical performance, i.e., reporting quarterly earnings per share (EPS) that exceeded its previously announced EPS guidance by one cent. According to the Complaint, in the fourth quarter of fiscal 2003 and the first three quarters of fiscal 2004, the Company under accrued or reversed previously accrued incentive compensation expense pursuant to Krispy Kreme's Senior Executive Incentive Compensation Plan. The respective under accrual and reversals, which were inconsistent with the formal incentive plan, were performed to inflate the Company's earnings so as to meet the benchmark of exceeding the Company's guidance by one cent. The Complaint alleges that the defendants understood the existence and significance of the under accrual and the reversals to the Company's earnings, yet failed to disclose either to the public. In addition, the defendants described favorably the Company's performance in earnings releases and analyst calls and did not disclose the under accrual and reversals or their impact on Company earnings. Further, the Complaint alleges that Livengood and Casstevens also signed and certified Krispy Kreme filings that misstated the Company's financial performance. The Complaint also alleges that Tate caused Krispy Kreme to engage in a bogus round-trip transaction to falsely increase its quarterly earnings in the second quarter of fiscal 2004. Finally, the Complaint alleges that each of the defendants sold stock following the Company's earnings announcement for the second quarter of fiscal 2004.

The Complaint charges Livengood with violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933 (Securities Act) and Rule 13a-14, promulgated under the Securities Exchange Act of 1934 (Exchange Act), and aiding and abetting violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder. The Complaint further charges Tate with violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act and Section 13(b)(5) of the Exchange Act and Rule 13b2-1, promulgated under the Exchange Act, and aiding and abetting violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13. The Complaint also charges Casstevens with violations of Section 17(a)(3) of the Securities Act and Section 13(b)(5) of the Exchange Act and Rules 13a-14 and 13b2-1, promulgated under the Exchange Act, and 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, 13a-11, and 13a-13. On the same day the Complaint was filed, the defendants consented to orders permanently enjoining the defendants from future violations, disgorgement of ill-gotten gains with prejudgment interest, and the imposition of civil penalties against defendants. The defendants consented to the entries of the final judgments without admitting or denying the allegations of the Complaint.

The Commission thanks the United States Attorney's Office, Southern District of New York, for its assistance in this matter. [SEC v. Scott A. Livengood, John W. Tate, and Randy S. Casstevens, Civil Action No. 1:09-CV-00159 (M.D. NC)] (LR-20923)

Information for Customers of James M. Nicholson and Westgate Capital Management, LLC

On Feb. 25, 2009, the United States District Court for the Southern District of New York granted the Securities and Exchange Commission's emergency application for an order freezing the assets of Westgate Capital Management, LLC (Westgate) and its managing member, James M. Nicholson (Nicholson). See Securities and Exchange Commission v. James M. Nicholson, et al., Action No. 09-civ-1748 (SDNY).

The SEC's complaint alleges that Nicholson and Westgate defrauded current and prospective investors in eleven hedge funds they managed by misrepresenting the value of the hedge funds to investors and soliciting new investors with sales materials that claimed a nearly impossible record of investment success.

On March 3, 2009, the court extended its preliminary asset freeze through trial in this matter, and entered a preliminary injunction by consent as to Defendants Nicholson and Westgate enjoining them from violating Sections 206(1), 206(2) and 206(4) of the Investment Advisers Act of 1940; 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.

In addition, the court entered an order appointing a receiver for the estates of Nicholson, Westgate and the following Relief Defendants: Westgate Absolute Return Fund, LP; Westgate Alpha Fund, LP; Westgate Equity Fund, LP; Westgate Focus Fund, LP; Westgate Growth Fund, LP; Westgate Opportunity Fund, LP; Westgate Opportunity Master Fund, Ltd.; Westgate Premier Growth Fund, LP; Westgate Select Fund, LP; Westgate Strategic Growth Fund, LP; and Westgate Summit Fund, LP.

The court appointed Lee S. Richards, Esq. as receiver with full powers to, among other things: determine the nature, location and value of all assets, take possession of all assets, and evaluate and determine claims of investors.

For more information, investors should contact the receiver at (877) 788-2801. Additional information is available at www.westgatecapitalreceiver.com.

For additional information, see Litigation Release No. 20911. [SEC v. James M. Nicholson, et. al.,United States District Court for the Southern District of New York, Civil Action No. 09 CV 1748 (RMB)] (LR-20924)

Securities and Exchange Commission Charges Ray M. White, of Mansfield Texas, With Ponzi Scheme

On March 4, U.S. District Judge Ed Kinkeade, for the Northern District of Texas, Dallas Division, appointed a receiver and froze the assets of a Mansfield, Texas resident who is alleged to have raised at least $10.9 million from over 250 investors in a purportedly lucrative foreign currency trading program. Defendant Ray M. White, on behalf of his company, defendant CRW Management, L.P., claimed to have achieved returns as high as 8.1% per week for investors. In truth, the Commission's complaint alleges that White and CRW have been operating a fraudulent scheme since at least April 2007, during which White has misappropriated several million dollars of investor funds to, among other things, finance his son's car-racing career, purchase real estate, and to make Ponzi payments to earlier investors with new investor funds.

The complaint further alleges that the defendants used only $93,900 of the investors' funds to trade in the foreign-currency market, loosing the vast majority of these funds in unsuccessful trades. According to the complaint, White perpetuated his scheme by sending investors fictitious account statements reflecting, in some instances, monthly returns of over 30%. White allegedly supported these bogus returns by making approximately $4.5 in Ponzi payments to investors. White used the remaining amount of investor funds to, among other things, purchase homes and cars, and finance car-racing activities. Approximately $3.5 million was paid to third parties for unknown and undisclosed purposes.

The complaint alleges that White and CRW violated the anti-fraud provisions 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. The complaint also alleges that the defendants violated the securities registration provisions of Sections 5(a) and 5(c) of the Securities Act. The complaint seeks permanent injunctions, disgorgement together with prejudgment interest, and civil penalties.

The complaint also named as relief defendants, Ray White's son, Christopher R. White, and Hurricane Motor Sports, L.L.C., a purported sports car business that was funded with investor funds. The Court has frozen the defendants' and relief defendants' assets and appointed a receiver to recover and conserve assets for the benefit of defrauded investors.

The U.S. Commodity Futures Trading Commission (CFTC) filed related charges against the defendants and relief defendants. The SEC acknowledges the assistance and cooperation of the CFTC in this matter. [SEC v. Ray M. White and CRW Management, L.P. Civil Action No. 3-09CV0407-K (U.S.D.C./N.D. Texas, Dallas Division)] (LR-20925)

SEC Obtains Emergency Asset Freeze to Halt Multi-Million Dollar Real Estate Investment Fraud

The Securities and Exchange Commission yesterday charged Los Angeles resident Bruce Friedman and two of his companies with securities fraud, and obtained an emergency court order to freeze their assets and halt an alleged ongoing investment scheme involving purported real estate and mortgage lending ventures.

According to the SEC's complaint, Friedman and his companies - Los Angeles-based Diversified Lending Group, Inc. (DLG) and Applied Equities, Inc. (AEI) - raised at least $216 million from hundreds of investors nationwide, many of whom are senior citizens, by promising guaranteed high returns through real estate-related investments. Instead, Friedman diverted substantial investor money to ventures unrelated to real estate, and also misappropriated at least $17 million to support his lavish lifestyle, including purchases of a luxury home, cars, vacations, jewelry, and designer clothing for himself and an alleged girlfriend, who is named as a relief defendant.

The SEC's complaint, filed in federal district court in Los Angeles, charges Friedman and his companies with selling securities in the form of one- or five-year "Secured Investment Notes," representing that DLG pools investor money and invests it 70 to 80 percent in real estate property and 20 to 30 percent in mortgage lending. Once investors invested in the Notes, defendants continued to represent to them that their money was being used as represented, that DLG's investments were profitable, that their money was safe, and that returns of either 9 percent or 12 percent were guaranteed. In fact, as alleged in the complaint, Friedman and his companies did not invest DLG investor proceeds as represented. Instead, they diverted a substantial amount of investor money to undisclosed business ventures unrelated to real property or mortgage lending, including Friedman's charitable foundation and businesses operated by affiliates and Friedman's family members and friends. Friedman and his companies only recently changed their written disclosure to mention these additional business ventures to DLG investors, even though DLG investors had financed them for years. Friedman also misappropriated substantial investor money for his own personal purposes.

In its lawsuit, the SEC obtained an order (1) freezing the assets of DLG, AEI, Friedman, and the relief defendant, Tina Placourakis; (2) appointing a temporary receiver over DLG, AEI and their affiliates; (3) preventing the destruction of documents; (4) granting expedited discovery; (5) requiring accountings from DLG, AEI and Friedman; and (6) temporarily enjoining DLG, AEI, and Friedman from future 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. The SEC also seeks preliminary and permanent injunctions, disgorgement, and civil penalties against DLG, AEI and Friedman and disgorgement from Placourakis. A hearing on whether a preliminary injunction should be issued against the defendants and whether a permanent receiver should be appointed is scheduled for March 10, 2009 at 10:00 a.m.

The SEC acknowledges the assistance of the Arkansas Securities Department, the California Department of Corporations, the Michigan Office of Financial and Insurance Regulation, and Financial Industry Regulatory Authority (FINRA). [SEC v. Diversified Lending Group, Inc., Applied Equities, Inc., and Bruce Friedman, Civil Action No. 2:09-cv-01533-R-JTL (USDC, C.D. Cal.)] (LR-20926)

In the Matter of Pediatrix Medical Group, Inc.

The Commission today charged Pediatrix Medical Group, Inc. (now known as Mednax Services, Inc.) with backdating stock options grants to executives and employees and with reporting false financial information to shareholders. Pediatrix Medical Group, Inc. (Pediatrix), is a physician services provider headquartered in Sunrise, Florida. The Commission's complaint alleges that from approximately 1997 through 2000, Pediatrix, by the actions of a now-deceased former senior financial officer, granted options at below-market prices ("in-the-money" options). Pediatrix has agreed to settle the Commission's charges without admitting or denying the allegations. The Commission's complaint, filed in federal court in Miami, alleges that on numerous occasions, Pediatrix used hindsight to select favorable exercise prices for employee and officer stock option grants without accurately reporting the financial impact of the grants to investors. According to well-established accounting standards, Pediatrix was required to record an expense for in-the-money options. Pediatrix allegedly avoided those expenses by retrospectively picking dates on which Pediatrix's stock was trading at lower prices and dating and pricing grants of stock options as if they had been granted on those earlier dates.

According to the Commission's complaint, Pediatrix's intentional backdating of stock option grants resulted in material misstatements and omissions in certain of the Forms 10-Q, 10-K, registration statements, and proxy statements that the company filed with the Commission. More specifically, the complaint alleges that Pediatrix failed to recognize a total of $8.8 million in compensation expense for the in-the-money value of the backdated stock options, resulting in an overstatement of Pediatrix's pretax income by approximately 6.74 percent in the relevant time period. Moreover, the complaint alleges that Pediatrix's filings contained material misstatements with respect to how it priced and accounted for its stock options.

Without admitting or denying the Commission's allegations, Pediatrix consented to be enjoined from violating Section 17(a) of the Securities Act, Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B), and 14(a) of the Exchange Act, and Rules 10b-5, 12b-20, 13a-1, 13a-13, and 14a-9 thereunder. The Commission took into account the cooperation that Pediatrix provided Commission staff during its investigation. [SEC v. Pediatrix Medical Group, Inc., Case No. 09-80366-CIV-RYSKAMP (S.D. Fla.) (LR-20927; AAE Rel. 2943)

SEC v. Zahra Ghods and RUSA Cap., Inc., Defendants, and Unisource Cap., LLC, Relief Defendant

The Commission announced today that, on Feb. 26, 2009, United States District Court Judge Clarence B. Cooper granted the Commission's motion for summary judgment on its claims against Zahra Ghods (Ghods), and RUSA Cap., Inc. (Rusa Cap). Ghods and Rusa Cap, a company that she controls, were found to have defrauded investors in connection with Ghods's false promises to earn generous returns for investors in "prime bank" instruments. The Court ordered Ghods to pay disgorgement of $4,045,736, prejudgment interest of $810,121, and a $120,000 civil penalty. In addition, the Court ordered Rusa Cap to pay a civil penalty of $600,000. The Court also enjoined Ghods and Rusa Cap from further violations of the federal securities laws.

In awarding summary judgment in favor of the Commission, the Court found that Ghods made material misrepresentations concerning: (1) the placement of investor funds in supposedly "blocked" accounts; (2) the supposed use of the proceeds for investment in risk-free medium term bank notes, (3) the supposed profitability of investing in such bank notes, (4) the investors' supposed inability to access investment funds that had been sent out of the country due to the Patriot Act, (5) the supposed safety and security of the investors' funds following their unauthorized removal by an associate of Ghods from an account in the Republic of San Marino to an unknown account in Austria; (6) Ghods's non-existent $100 million certificate of deposit at the Canadian Imperial Bank of Commerce (CIBC) as security for the investments and Ghods's non-existent account at CIBC in "the high ten figures;" and (7) the supposed availability as security for the investments of iron ore in mines in Mexico that Ghods claims to own. [SEC v. Zahra Ghods and RUSA Cap., Inc., Defendants, and Unisource Cap., LLC, Relief Defendant, Civil Action No. 1:07-CV-1047-CC (N.D. Ga.)] (LR-20928)

SEC v. Competitive Technologies, Inc.

The Securities and Exchange Commission announced that a federal court jury on March 3, 2009, returned a verdict in favor of Richard A. Kwak, of Escondido, California. The Commission had charged Kwak, a former registered representative of a broker-dealer in Rancho Bernardo, California, with violating the federal securities laws by participating in a scheme to manipulate the stock price of Competitive Technologies, Inc., (CTT), a technology development company located in Fairfield, Connecticut. The verdict followed a one-week trial in Bridgeport, Connecticut before the Honorable Janet Hall, United States District Court Judge for the District of Connecticut.

The Commission's complaint, filed against a total of eight defendants on Aug. 11, 2004, alleged that the defendants participated in a scheme to manipulate and inflate the price of CTT stock from at least July 1998 to June 2001. The complaint alleged that the defendants (which included CTT itself and its former CEO, plus six former registered representatives of broker-dealers) raised and maintained the price of CTT's stock and created a false or misleading appearance with respect to the market for CTT stock through manipulative practices such as placing buy orders at or near the close of the market in order to inflate the reported closing price (marking the close), placing successive buy orders in small amounts at increasing prices (painting the tape), and using accounts they controlled or serviced to place pre-arranged buy and sell orders in virtually identical amounts (placing "matched trades").

A previous trial in November 2007 resulted in a verdict in the Commission's favor against one scheme participant, Sheldon A. Strauss, a former registered representative from Cleveland, Ohio, and a hung jury against Kwak and one other defendant, Stephen J. Wilson. The Commission retried the case against Wilson, which resulted in an Oct. 14, 2008 jury verdict in Wilson's favor. The Commission retrial of the case against Kwak resulted in the March 3, 2009 verdict. In addition, the Commission previously settled charges in the same case against: former registered representative Chauncey Steele, formerly of Cohasset, Massachusetts, in July 2005; CTT in October 2007; Frank McPike of Ridgefield, Connecticut, the former CEO of CTT, in October 2007; John R. Glushko, formerly a registered representative associated with a broker-dealer in Las Vegas, Nevada, in October 2007; and former registered representative Thomas C. Kocherhans of Orem, Utah, in October 2007. [SEC v. Competitive Technologies, Inc., et. al., Civil Action No. 304 CV 1331 JCH (District of Connecticut)] (LR-20929)

SEC Obtains Preliminary Injunction Against Hedge Fund and its Investment Adviser for Fraud in Minnesota

On Feb. 25, 2009, the Commission obtained a preliminary injunction order, by consent, in the U.S. District Court of Minnesota against Paramount Partners, LP (Paramount), a hedge fund, Crossroad Capital Management, LLC (Crossroad), Paramount's investment adviser, and John W. Lawton (Lawton), who runs Crossroad.

The Commission's complaint filed on February 18, alleges that Paramount is a hedge fund in which approximately 50 to 60 investors, many of whom live in Minnesota, have invested as much as $9 million. The complaint alleges that Lawton, a resident of San Francisco, California, and Crossroad have engaged in a fraud in which they misrepresented Paramount's returns and assets to investors. The complaint alleges that the defendants represented to investors that Paramount has produced annual returns of 65% to 19% since 2001. The complaint alleges that in January 2009, defendants sent account statements to investors that reflected investments totaling about $17 million as of Dec. 31, 2008. The complaint alleges that, in fact, Paramount only had $5.3 million of assets in its accounts at that time. The complaint alleges that as of February 13, Paramount's assets amounted to less than $2 million, and that defendants withdrew $900,000 in January. The complaint further alleges that when the Commission requested documents from the defendants to verify defendants' claims about Paramount's assets, the defendants provided account statements showing a false $12 million account balance in a brokerage account that had long been closed.

In the order dated February 25, the Honorable Judge Ann Montgomery entered a preliminary restraining order enjoining Paramount, Crossroad, and Lawton from violating the antifraud provisions of the Securities Act of 1933 [Section 17(a)] and the Securities Exchange Act of 1934 [Section 10(b) and Rule 10b-5 thereunder], and against Crossroad and Lawton with respect to violations of the Investment Advisers Act of 1940 [Sections 206(1), 206(2), and 206(4) and Rule 206(4)-8 thereunder] and aiding and abetting of Crossroad's violations of those provisions by Lawton. The Order, among other things, also freezes assets of Paramount, Crossroad, and Lawton until further order of the court. Defendants consented to the Order without admitting or denying the allegations in the Complaint. [SEC v. John W. Lawton, Paramount Partners, LP, and Crossroad Capital Management, LLC (Case Civil No. 09-368 ADM/AJB, USDC, D. Minn.)) (Rel. Nos. LR-20930 and LR-20907)

SEC Charges Former Florida Stockbroker and Broker Dealer in $4.7 Million Market Manipulation And Kickback Case

On Tuesday, March 3, 2009, the Securities and Exchange Commission filed a complaint against former Florida stockbroker Anthony Fareri, 43, Fareri Financial Services, Inc. d/b/a Amerifinancial (FFS), and Relief Defendant Anthony Fareri & Associates, Inc. (AFAI) for their involvement in a market manipulation and kickback scheme that defrauded customers of the Boca Raton brokerage firm.

The SEC complaint, filed in the United States District Court for the Southern District of Florida, alleges that in 2004 and 2005 Fareri defrauded his customers of more than $4.7 million by purchasing and otherwise acquiring for their accounts worthless shares of two shell companies as part of a fraudulent scheme to manipulate the companies' stock. According to the complaint, the two shell companies were Secure Solutions Holdings, Inc. (SSLX) and American Financial Holdings, Inc. (AFHJ). Each traded on the over-the-counter market and was quoted on the Pink Sheets.

The Commission's complaint alleges that Fareri and FFS violated Section 17(a) of the Securities Act of 1933, Sections 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder and that FFS also violated Section 15(c)(1) of the Exchange Act. The complaint seeks permanent injunctions, disgorgement plus prejudgment interest and civil penalties. AFAI is not alleged to have engaged in any federal securities law violations, but is alleged to hold or control funds that represent fruits of violations committed by defendants.

For additional information on related Commission actions, see Litigation Release No. 20293 (Sept. 24, 2007) and Release No. 34-52037 (July 15, 2005).

The Commission acknowledges the assistance of the U.S. Attorney's Office for the District of Columbia, the Federal Bureau of Investigation, the United States Postal Inspection Service, NASD (now known as the Financial Industry Regulatory Authority), and the British Columbia Securities Commission. [SEC v. Anthony Fareri, Fareri Financial Services, Inc. d/b/a Amerifinancial, and Anthony Fareri & Associates, Inc., Civil Action No. 09-80360-CIV (S.D. Fla.)] (LR-20931)

INVESTMENT COMPANY ACT RELEASES

Forward Funds, et al.

A notice has been issued giving interested persons until March 27 to request a hearing on an application filed by Forward Funds, et al. for an order under Section 17(d) of the Investment Company Act and Rule 17d-1 under the Act to permit certain joint transactions. The order would permit certain registered open-end investment companies in the same group of investment companies to enter into a special servicing agreement. (Rel. IC-28640 - March 3)

Advisors Asset Management, Inc. and Advisors Disciplined Trust

An order has been issued on an application filed by Advisors Asset Management, Inc. and Advisors Disciplined Trust under Sections 6(c) and 17(b) of the Act to permit transactions in certain securities between series of registered unit investment trusts. (Rel. IC-28641 - March 4)

SELF-REGULATORY ORGANIZATIONS

Immediate Effectiveness of Proposed Rule Changes

A proposed rule change filed by New York Stock Exchange adopting new NYSE Rule 6A and amending existing NYSE Rule 36 concerning the use of personal portable or wireless communication devices and the use or possession of wireless trading devices on and off the Exchange Trading Floor (SR-NYSE-2009-23) 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 March 9. (Rel. 34-59479)

A proposed rule change filed by NYSE Alternext US adopting new Rule 6A - NYSE Alternext Equities and amending existing Rule 36 - NYSE Alternext Equities concerning the use of personal portable or wireless communication devices and the use or possession of wireless trading devices on and off the Exchange Trading Floor (SR-NYSEALTR-2009-21) 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 March 9. (Rel. 34-59480)

The Commission issued notice of filing and immediate effectiveness of a proposed rule change (SR-NYSEALTR-2009-13) filed by NYSE Alternext US under Rule 19b-4 of the Securities Exchange Act of 1934 amending NYSE Alternext Equities Rule 17 to address issues related to vendor liability and to make amendments and conforming changes to NYSE Alternext Equities Rule 18. Publication is expected in the Federal Register during the week of March 9. (Rel. 34-59482)

A proposed rule change filed by New York Stock Exchange to modify certain equity transaction fees and rebates (SR-NYSE-2009-22) 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 March 9. (Rel. 34-59483)

A proposed rule change filed by the NASDAQ Stock Market to eliminate the $3 underlying price requirement for continued listing and listing of additional series (SR-Nasdaq-2009-016) 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 March 9. (Rel. 34-59485)

The Commission issued notice of filing and immediate effectiveness of a proposed rule change (SR-NYSE-2009-16) filed by the New York Stock Exchange under Rule 19b-4 of the Securities Exchange Act of 1934 to amend NYSE Rule 17 to address issues related to vendor liability and to make amendments and conforming changes to NYSE Rule 18. Publication is expected in the Federal Register during the week of March 9. (Rel. 34-59486)

A proposed rule change filed by Financial Industry Regulatory Authority (SR-FINRA-2009-007) to amend Incorporated NYSE Rules 12 (Business Day) and 282 (Buy-in Procedures) and to Delete Incorporated NYSE Rule 177 (Delivery Time--"Cash" Contracts) Relating to the Elimination of NYSE Members' Ability to Enter Orders on the NYSE with Settlement Instructions of "Cash," "Next Day" and "Seller's Option" 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 March 9. (Rel. 34-59490)

A proposed rule change filed by the New York Stock Exchange extending a temporary equity transaction fee for shares executed on the NYSE MatchPointSM System, effective March 1, 2009 until April 30, 2009 (SR-NYSE-2009-20) has become immediately 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 March 9. (Rel. 34-59491)

A proposed rule change filed by NYSE Arca (SR-NYSEArca-2009-18) relating to the listing and trading of the Bear Market Strategic Accelerated Redemption Securities(R) Linked to the S&P Small Cap Regional Banks Index 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 March 9. (Rel. 34-59493)

Proposed Rule Changes

The Financial Industry Regulatory Authority filed a proposed rule change (SR-FINRA-2009-006) relating to a new limited representative registration category for investment banking professionals pursuant to Rule 19b-4 under the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of March 9. (Rel. 34-59484)

The NYSE Alternext US filed a proposed rule change (SR-NYSEALTR-2009-15) , as modified by Amendment No. 1 thereto, pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 to amend Rule 123C to provide the Exchange with the ability to temporarily suspend certain NYSE requirements relating to the closing of securities at the Exchange. Publication is expected in the Federal Register during the week of March 9. (Rel. 34-59488)

The New York Stock Exchange filed a proposed rule change (SR-NYSE-2009-18), as modified by Amendment No. 1 thereto, pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 to amend Rule 123C to provide the Exchange with the ability to temporarily suspend certain NYSE requirements relating to the closing of securities at the Exchange. Publication is expected in the Federal Register during the week of March 9. (Rel. 34-59489)

The International Securities Exchange filed a proposed rule change (SR-ISE-2009-08) relating to changes to the Third Amended and Restated Limited Liability Company Operating Agreement of Direct Edge Holdings LLC. Publication is expected in the Federal Register during the week of March 9. (Rel. 34-59492)

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http://www.sec.gov/news/digest/2009/dig030509.htm