SEC News Digest

ENFORCEMENT PROCEEDINGS

SEC Office of the Chief Accountant Releases Staff Accounting Bulletin

The Office of the Chief Accountant of the U.S. Securities and Exchange Commission today issued updated guidance on how the agency's staff interprets accounting rules related to the oil and gas industry.

These updates correspond with rulemaking that the SEC approved in December 2008 to modernize its oil and gas company reporting requirements to help investors evaluate the value of their investments in these companies.

The principal revisions of the guidance, known as Staff Accounting Bulletin No. 113, include:

• changing the price used in determining quantities of oil and gas reserves;
• eliminating the option to use post-quarter-end prices to evaluate write-offs of excess capitalized costs under the full cost method of accounting;
• removing the exclusion of unconventional methods used in extracting oil and gas from oil sands or shale as an oil and gas producing activity; and,
• removing certain questions and interpretative guidance which are no longer necessary.

The guidance updates Topic 12 of the codification of staff accounting bulletins in order to make it consistent with the Commission's Final Rule Release, Modernization of Oil and Gas Reporting, issued Dec. 31, 2008.

The statements in a staff accounting bulletin, or SAB, are not rules or interpretations of the Commission, nor are they published as bearing the Commission's official approval. They represent interpretations and practices followed by the Division of Corporation Finance and the Office of the Chief Accountant in administering the disclosure requirements of the Federal securities laws. (Press Rel. 2009-228)

Fee Rate Advisory #3 for Fiscal Year 2010

The continuing resolution funding the Securities and Exchange Commission for fiscal year 2010 since Oct. 1, 2009, is being extended through Dec. 18, 2009. During this period, fees paid under Section 6(b) of the Securities Act of 1933 and Sections 13(e) and 14(g) the Securities Exchange Act of 1934 will remain at the current rate of $55.80 per million dollars, while fees paid under Section 31 of the Securities Exchange Act of 1934 will remain at the current rate of $25.70 per million dollars.

As previously announced, 30 days after the date of enactment of the Commission's regular fiscal year 2010 appropriation, the Section 31 fee rate applicable to securities transactions on the exchanges and in the over-the-counter markets will be set at $12.70 per million dollars. The assessment on security futures transactions under Section 31(d) will remain unchanged at $0.0042 for each round turn transaction.

In addition, five days after the date of enactment of the Commission's regular appropriation, the Section 6(b) fee rate applicable to the registration of securities, the Section 13(e) fee rate applicable to the repurchase of securities, and the Section 14(g) fee rate applicable to proxy solicitations and statements in corporate control transactions will be set at $71.30 per million dollars. The Division of Trading and Markets Office of Interpretation and Guidance is available for questions relating to Section 31, at (202) 551-5777 or at tradingandmarkets@sec.gov. A copy of the Commission's April 30, 2009, order regarding fee rates for fiscal year 2010 is available at http://www.sec.gov/rules/other/2009/33-9030.pdf.

The Commission will issue further notices as appropriate to keep the public informed of developments relating to enactment of the Commission's regular appropriation and the effective dates for the above fee rate changes. These notices will be posted at the SEC's Web site at http://www.sec.gov. (Press Rel. 2009-230)

ENFORCEMENT PROCEEDINGS

In the Matter of Jonathan W. Mikula

On Oct. 29, 2009, the Commission issued an Order Instituting Administrative Proceeding Pursuant to Section 15(b) of the Securities and Exchange Act of 1934, Making Findings, and Imposing Remedial Sanctions (Order) against Jonathan W. Mikula (Respondent) The Order finds that, on Sept. 25, 2009, an injunction was entered against the Respondent in Securities and Exchange Commission v. Jonathan W. Mikula, et al. (Civil Action Number 1:08-CV-3097-BBM) (SEC v. Mikula, et al.), enjoining him from future violations of Sections 5(a), 5(c) and 17(a) of the Securities Act 1933, Sections 10(b) and 15(a) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder. The Order further finds that the Respondent and a business that he operated, JW&P Consulting, Inc. (JW&P Consulting), acted as securities brokers without being registered with the Commission.

The Complaint in SEC v. Mikula, et al. alleged that between January 2008 and at least Oct. 2, 2008, Respondent, JW&P Consulting, John B. Craddock (Craddock), and Nations Warranty Group, Inc. (Nations Warranty Group) made misrepresentations and omissions of material fact in the offer and sale of approximately $2.8 million in short term promissory notes issued by Nations Warranty Group to approximately 120 investors. The Complaint further alleged that Respondent, JW&P Consulting, Craddock, and Nations Warranty Group participated in an unregistered offering of securities.

Based on the above, the Order bars the Respondent from association with any broker or dealer. Respondent consented to the issuance of the Order without admitting or denying any of the findings in the Order. (Rel. 34-60904; File No. 3-13670)

SEC Files Settled Insider Trading Charges against CyberKey Solutions, Inc.'s Former Outside Counsel

Today the Securities and Exchange Commission filed a civil action in the U.S. District Court for the Middle District of Florida, alleging that J. Bennett Grocock, the former outside counsel for CyberKey Solutions, Inc. (CyberKey), made at least $170,000 by selling shares of the company's stock while in possession of material, nonpublic information about the company. Grocock also sold CyberKey shares before he possessed material, nonpublic information about the company, but none of the shares he sold were issued under a registration statement or with any legitimate exemption from registration.

According to the Commission's complaint, Grocock became aware in the summer and fall of 2006 that CyberKey was under investigation for possible securities violations by several different agencies, including the Commission, the then-National Association of Securities Dealers, and the Utah Division of Securities. Despite being aware of these investigations, any one of which would have had material consequences for the company if carried forward to its logical conclusion, Grocock continued to sell CyberKey shares and in fact accelerated his sales after learning of the Commission's investigation in mid-November 2006. Grocock generated $248,800 in total from his sales, which ended shortly after CyberKey's CEO was arrested and charged with civil and criminal securities fraud, among other things, in March 2007.

Grocock has consented, without admitting or denying the allegations in the complaint, to a permanent injunction against future violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, as well as against future violations of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933. On the basis of sworn financial statements and other documents and information furnished to the Commission, payment of disgorgement was waived and civil penalties were not imposed. [SEC v. J. Bennett Grocock, Civ. Action No. 09-cv-1833 (M.D. Fla.) (GJK)] (LR-21267)

Default Judgment of Permanent Injunction and Other Relief Entered Against Defendant David J. Aubel

The Commission announced that on Oct. 19, 2009, the United States District Court for the Southern District of Florida entered a Default Judgment of Permanent Injunction and Other Relief against Defendant David J. Aubel. The default judgment enjoins Aubel from violating Sections 5(a), and 5(c) of the Securities Act of 1933, and Sections 10(b), 13(d), and 16(a) of the Securities Exchange Act of 1934, and Rules 10b-5, 13d-1, and 16a-3, thereunder. In addition, the default judgment also bars Aubel from participating in any offering of a Penny Stock, pursuant to Section 21(d) of the Securities Exchange Act of 1934.

Previously, the Commission filed a complaint against Aubel and others alleging accounting fraud related to annual and quarterly filings and the issuance of false and misleading press releases of Video Without Boundaries, inc. [SEC v. Video Without Boundaries, Inc. (d/b/a China Logistics Group Inc.), et al., Civil Action No. 08-61517-CIV-Gold/Mcalily (S.D. Fla.) (LR-20739). [SEC v. Video Without Boundaries, Inc. (d/b/a China Logistics Group Inc.), et al., Civil Action No. 08-61517-CIV-GOLD/MCALILY] (LR-21268)

Court Enters Final Judgments and Other Relief as to Relief Defendants Richard Lane and T-N-T Education Company, Inc.

The Commission announced that on Oct. 9, 2009, the Honorable Anne C. Conway of the United States District Court for the Middle District of Florida entered Final Judgments and Other Relief against Relief Defendants Richard Lane and T-N-T Education Company, Inc. The final judgments hold Richard Lane and T-N-T Education jointly and severally liable for disgorgement and prejudgment interest totaling $5,726,729. Based on Richard Lane and T-N-T Education's financial condition, the Court waived part of the disgorgement amount and all the pre-judgment interest. Relief Defendants Richard Lane and T-N-T Education consented to the entry of the final judgments without admitting or denying any of the allegations in the complaint.

The Commission commenced this action on Dec. 5, 2007, by filing an emergency action against Robert Lane, Wealth Pools, and Recruit For Wealth, alleging they defrauded investors through a fraudulent pyramid scheme primarily targeting the Hispanic community. [SEC v. Robert E. Lane, et al., Civil Action No. 6:07-cv-1920-Orl-22KRS (M.D. Fla.)] (LR-21269)

Court Enters Final Judgments of Permanent Injunction and Other Relief as to Robert E. Lane, Wealth Pools International, Inc. and Recruit for Wealth, Inc. and Final Judgments and other Relief as to Renee Becker and Julia Lane

The Commission announced that on Sept. 14, 2009, the Honorable Anne C. Conway of the United States District Court for the Middle District of Florida entered Final Judgments of Permanent Injunction and Other Relief against Defendants Robert E. Lane, Wealth Pools International, Inc. and Recruit for Wealth, Inc. (Defendants) and Final Judgments and Other Relief as to Relief Defendants Renee Becker and Julia Lane (Relief Defendants). The final judgments enjoin the Defendants from violating Sections 5(a), 5(c) and 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 to injunctive relief, the final judgments hold Robert Lane and Julia Lane jointly and severally liable for disgorgement and prejudgment interest totaling $2,466,339. Based on Robert and Julia Lane's financial condition, the Court waived part of the disgorgement amount, all the pre-judgment interest and did not impose a civil money penalty against Robert Lane. Additionally, Relief Defendant Renee Becker was order to pay disgorgement and prejudgment interest of $38,344. All of the Defendants and Relief Defendants consented to the entry of the final judgments without admitting or denying any of the allegations in the Commission's complaint.

The Commission commenced this action on Dec. 5, 2007, by filing an emergency action against the Defendants alleging they defrauded investors through a fraudulent pyramid scheme primarily targeting the Hispanic community. [SEC v. Robert E. Lane, et al., Civil Action No. 6:07-cv-1920-Orl-22KRS (M.D. Fla.)] (LR-21270)

SEC Charges Former CFO and Six Relatives and Friends in California-Based Insider Trading Ring

On Oct. 30, 2009, the Securities and Exchange Commission filed a civil injunctive action in the U.S. District Court for the Northern District of California charging King Chuen Tang a/k/a Chen Tang, Ronald Yee, Zisen Yu, Joseph Seto, Ming Siu, King S. Tang a/k/a James K. Tang, and Ying Kit Yu a/k/a Eddie Yu with violations of the antifraud provisions of the federal securities law in connection with their roles in an insider trading scheme that reaped more than $8 million in illicit profits.

According to the Commission's complaint, in 2008, Chen Tang, Zisen Yu, Joseph Seto and Ming Siu illegally traded in the securities of Tempur-pedic International, Inc., based on inside information Tang obtained through his employment as CFO of a private equity fund. The complaint also alleges that in 2007, Chen Tang's brother-in-law Ronald Yee illegally tipped Tang information about a transaction between Yee's employer and Acxiom Corporation, and that all the defendants except Yee illegally traded in Acxiom securities.

The complaint alleges that the defendants violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint also alleges that Defendants Chen Tang, Ronald Yee, Zisen Yu, Ming Siu, and Joseph Seto violated Section 17(a) of the Securities Act of 1933. The complaint requests that the court permanently enjoin the Defendants from future violations of the federal securities laws, and order them to disgorge ill-gotten gains with prejudgment interest and pay financial penalties. The complaint also names Venture Associates Fund I, Tang Capital Partners, Acceleration Capital Partners, American Pegasus Long Short Fund Segregated Portfolio, Ping Lee Tang, Ka Ling Lee, Yin Lee Ka, Cheung-Ting Ka, Sylvia Tsui, Doi Ping Siu, Yuen-Lai Ma, Leung-Kee Siu, Rosalie Cho, and two minor children of Chen Tang as relief defendants in order to recover ill-gotten gains in their possession. [SEC v. King Chuen Tang a/k/a Chen Tang, Ronald Yee, Zisen Yu, Joseph Seto, Ming Siu, King S. Tang a/k/a James K. Tang, and Ying Kit Yu a/k/a Eddie Yu, Defendants, and Venture Associates Fund I, Tang Capital Partners, Acceleration Capital Partners, American Pegasus Long Short Fund Segregated Portfolio, Ping Lee Tang, Ka Ling Lee, Yin Lee Ka, Cheung-Ting Ka, Sylvia Tsui, Doi Ping Siu, Yuen-Lai Ma, Leung-Kee Siu, Rosalie Cho, Minor Child I and Minor Child II, minor children of Defendant King Chuen Tang a/k/a Chen Tang, Relief Defendants, Civil Action No. CV 09 05146 JCS (N.D. Calif.)] (LR-21271)

SEC Charges China Holdings, Inc. and Its CEO With Fraud for Filing Unauthorized Audit Reports

The Securities and Exchange Commission today filed civil fraud charges in the U.S. District Court for the District of Columbia against China Holdings, Inc. (CHHL) and Julianna Lu (Lu), who is described in CHHL's public filings as the company's "Chief Executive Officer, Principal Financial Officer, Principal Accounting Officer, Treasurer and Chairwoman of the Board of Directors."

The Commission's complaint alleges that from April 15, 2008, through April 17, 2009, CHHL and Lu made material misrepresentations in nine public filings. In April 2008, Lu filed a Form 10-KSB and two Forms 10-KSB/A for CHHL's fiscal year 2007 which improperly included audit reports from CHHL's then-current and former auditors. As alleged in the complaint, Lu knew that neither auditor authorized her to use its audit report in the filings because she had not made necessary corrections to the filings, and because she did not give the auditors the opportunity to review and approve the filings. As a result, the filings fraudulently misrepresented that CHHL's fiscal year 2007 financial statements were audited and that CHHL's auditors certified that the financial statements and related disclosures in the filings fairly presented the financial position of CHHL and its subsidiaries.

As further alleged in the complaint, in April and May 2008, Lu filed a Form 8-K and two Forms 8-K/A which fraudulently misrepresented that CHHL dismissed its then-current auditor (who had in fact resigned), and that CHHL and the auditor had no disagreements over matters of accounting principles or practices, financial statement disclosure, or auditing scope or procedures. Lu attached to the second Form 8-K/A a fabricated letter purportedly from the dismissed auditor which falsely stated that the auditor agreed with CHHL's misrepresentations. As the complaint alleges, Lu and CHHL repeated all of the above misrepresentations in March and April 2009, when Lu filed a Form 10-K and two Forms 10-K/A for CHHL's fiscal year 2008. Lu again included audit reports from CHHL's two previous auditors despite knowing that neither firm authorized her to use its report.

The complaint charges CHHL and Lu with violating Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder. The complaint also charges Lu with aiding and abetting CHHL's violations of Exchange Act Section 10(b) and Rule 10b-5. The Commission seeks a permanent injunction and civil monetary penalties against both defendants, and an officer and director bar against Lu. [SEC v. China Holdings, Inc. and Julianna Lu (a.k.a. Jenny XueJian Lu), Civil Action No. 1:09-CV-02045 (JDB) (D.D.C.)] (LR-21272; AAE Rel. 3063)

INVESTMENT COMPANY ACT RELEASES

Morgan Stanley Investment Management Inc., et al.

An order has been issued on an application filed by Morgan Stanley Investment Management Inc., et al. pursuant to Sections 6(c) and 17(b) of the Investment Company Act for an exemption from Section 17(a) of the Act and pursuant to Section 17(d) of the Act and Rule 17d-1 under the Act permitting certain joint arrangements. The order permits (1) registered investment companies for which certain affiliates of Morgan Stanley act as an adviser to engage in certain securities transactions with certain affiliates of Citigroup Inc. (Citigroup) and (2) registered investment companies for which certain affiliates of Citigroup act as an adviser to engage in certain securities transactions with certain affiliates of Morgan Stanley. (Rel. IC-28986 - October 29)

SELF-REGULATORY ORGANIZATIONS

Immediate Effectiveness of Proposed Rule Changes

A proposed rule change filed by the NASDAQ Stock Market to modify its optional anti-internalization functionality (SR-NASDAQ-2009-089) 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 Nov. 2, 2009. (Rel. 34-60893)

A proposed rule change filed by NASDAQ OMX BX to modify its optional anti-internalization functionality (SR-BX-2009-068) 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 Nov. 2, 2009. (Rel. 34-60894)

A proposed rule change filed by NYSE Arca (SR-NYSEArca-2009-98) relating to $1 strikes for KBW Bank Index options (BKX) 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 Nov. 2, 2009. (Rel. 34-60896)

A proposed rule change (SR-ISE-2009-85), filed by the International Securities Exchange related to market maker guidelines 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 Nov. 2, 2009. (Rel. 34-60897)

Proposed Rule Change

The NASDAQ Stock Market filed a proposed rule change (SR-NASDAQ-2009-081) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 and Rule 19b-4 thereunder, to modify the fees for listing on the Nasdaq Stock Market and the fee for written interpretations of Nasdaq listing rules. Publication is expected in the Federal Register during the week of Nov. 2, 2009. (Rel. 34-60899)

SECURITIES ACT REGISTRATIONS

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RECENT 8K FILINGS

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http://www.sec.gov/news/digest/2009/dig103009.htm