SEC News Digest

COMMISSION ANNOUNCEMENTS

Commission Meetings

Closed Meeting - Thursday, November 19, 2009 - 2:00 p.m.

The subject matter of the Closed Meeting scheduled for November 19 will be: institution and settlement of injunctive actions; institution and settlement of administrative proceedings; and other matters relating to enforcement proceedings.

At times, changes in Commission priorities require alterations in the scheduling of meeting items. For further information and to ascertain what, if any, matters have been added, deleted or postponed, please contact: The Office of the Secretary at (202) 551-5400.

ENFORCEMENT PROCEEDINGS

Delinquent Filers' Stock Registrations Revoked

The registrations of the registered securities of Park Meditech, Inc., Peerless Industrial Group, Inc., Peerless Tube Co., PH Group, Inc., and PHC, Inc., have been revoked.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. 34-60987; File No. 3-13663)

SEC Charges SafeNet, Inc. and Two Former Senior Officers in Earnings Management and Options Backdating Schemes

SEC Also Charges Three Former SafeNet Accountants for Their Roles in the Earnings Management Scheme

The Securities and Exchange Commission today filed a civil injunctive action against SafeNet, Inc., its former Chief Executive Officer, Anthony Caputo, its former Chief Financial Officer, Kenneth Mueller, and three former SafeNet accountants, Clinton Ronald Greenman, John Wilroy, and Gregory Pasko. The complaint filed in the United States District Court for the District of Columbia alleges that, during the period from the fourth quarter of 2000 through May 2006, SafeNet engaged in two fraudulent schemes - one involving the backdating of options and the other earnings management. Each scheme resulted in SafeNet materially misstating its financial results and disseminating materially false and misleading information concerning its financial condition. According to the complaint, Mueller and Caputo were involved in both schemes, while Greenman, Wilroy and Pasko were involved only in the earnings management scheme. Without admitting or denying the allegations in the complaint, except as to jurisdiction, all of the defendants have agreed to settle the action on the terms described below.

This is the first enforcement action brought by the Commission pursuant to Regulation G. Regulation G applies whenever a company subject to the periodic reporting requirements under Section 13(a) or 15(d) of the Exchange Act of 1934, or a person acting on the company's behalf, discloses publicly any material information that includes a "non-GAAP financial measure." Non-GAAP financial measures, which are not calculated in conformity with Generally Accepted Accounting Principles, often exclude non-recurring, infrequent, or unusual expenses. Regulation G requires companies to reconcile the non-GAAP financial measure to the most directly comparable GAAP financial measure. Regulation G also prohibits companies and their employees from disseminating false or misleading non-GAAP financial measures or presenting the non-GAAP financial measures in such a manner that they mislead investors or obscure the company's GAAP results. The complaint alleges that:

• From the third quarter of 2004 through the second quarter of 2005, SafeNet, through the actions of Mueller, Caputo, Greenman, Wilroy (after the third quarter of 2004), and Pasko, engaged in a scheme to meet or exceed quarterly earnings per share (EPS) targets through the use of improper accounting adjustments.


• During the relevant period, Caputo and Mueller were aware that SafeNet would be unable to meet its earnings targets through normal business operations, and in response, took actions to ensure that SafeNet would meet its earnings targets.


• At Mueller's direction, Greenman, Wilroy, and Pasko, made, or caused others to make, improper accounting adjustments to various expenses including the improper classification of ordinary operating expenses as non-recurring integration expenses (costs incurred to integrate acquired companies into current operations), and the improper reduction of accruals and reserves.


• SafeNet, Mueller, and Caputo represented to investors that SafeNet's non-GAAP earnings results excluded certain non-recurring expenses, when, in fact, SafeNet had misclassified and excluded a significant amount of recurring, operating expenses from its non-GAAP earnings results, in order to meet or exceed quarterly EPS targets.


• In the course of the earnings management scheme, Mueller, Caputo, Greenman, Wilroy, and Pasko prepared, reviewed, and/or signed SafeNet's materially false and misleading securities filings and press releases.

In addition, the complaint alleges that SafeNet, through the actions of three former officers, engaged in a scheme to backdate option grants to senior executives and employees in order to take advantage of low points in the company's stock price, without recording the requisite compensation expense for these option grants. According to the complaint:

• The three former officers who participated in the backdating of option grants were Caputo, Mueller, and Carole Argo, a former SafeNet President and CFO, who was convicted in a parallel criminal action and settled with the Commission in 2008.


• Argo, in consultation with Caputo, looked back and selected historical dates when SafeNet's stock price had closed at or near the low for a given period to use as grant dates for SafeNet option grants. By selecting these highly favorable dates and causing options to be granted on dates when they would be "in-the-money," Argo and Caputo created opportunities for themselves and others at SafeNet to reap substantial profits.


• Mueller became SafeNet's CFO in June 2004 and after learning of SafeNet's backdating practice, Mueller continued the backdating scheme by, among other actions, approving a highly favorable historical date to use as the grant date for option grants to himself and others.


• During the backdating scheme, Mueller, Caputo, and Argo prepared, reviewed and/or signed SafeNet's materially false and misleading securities filings and press releases.


• Argo, Caputo, and Mueller each benefited from the backdating scheme by receiving significant in-the-money option grants. Caputo and Mueller realized illicit profits of approximately $1.6 million and $80,000, respectively, from the sale of SafeNet stock obtained from the exercise of backdated option grants.

All defendants have agreed to settle this matter, without admitting or denying the allegations in the complaint, on the following terms:

• SafeNet consented to the entry of a judgment: permanently enjoining it from violating the antifraud provisions of the federal securities laws, Section 17(a) of the Securities Act of 1933 (Securities Act), Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5, the rule relating to the use of non-GAAP financial measures of Regulation G, the reporting, books and records and internal controls provisions, Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act, and Exchange Act Rules 12b-20, 13a-1, 13a-11, and 13a-13, and the proxy solicitation provisions, Section 14(a) of the Exchange Act and Exchange Act Rule 14a-9; and ordering SafeNet to pay a civil penalty of $1,000,000.


• Mueller consented to the entry of a judgment: (a) permanently enjoining him from violating Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Exchange Act Rule 10b-5, the internal controls and books and records provisions of Section 13(b)(5) of the Exchange Act and Exchange Act Rule 13b2-1, the misrepresentations to auditors provision of Exchange Act Rule 13b2-2, the ownership reporting provisions of Section 16(a) of the Exchange Act and Exchange Act Rule 16a-3, the proxy solicitation provisions of Section 14(a) of the Exchange Act and Exchange Act Rule 14a-9, the certification provision of Exchange Act Rule 13a-14, and Regulation G, and from aiding and abetting violations of the reporting, books and records, and internal controls provisions; (b) finding him liable for disgorgement of $78,250 plus prejudgment interest of $21,349, but after taking into account his previous settlement with SafeNet, ordering him to pay $37,000 plus prejudgment interest of $13,561; (c) ordering him to pay a civil penalty of $75,000; and (d) barring him from acting as an officer or director of a public company for a period five years.


• Caputo consented to the entry of a judgment permanently enjoining him from violating Sections 17(a)(2) and 17(a)(3) of the Securities Act, Sections 13(b)(5), 14(a), and 16(a) of the Exchange Act, Exchange Act Rules 13a-14, 13b2-1, 13b2-2, 14a-9, and16a-3, and Regulation G, and from aiding and abetting violations of the reporting, books and records, and internal controls provisions; finding him liable for disgorgement of $1,690,000 plus prejudgment interest of $214,000, but deeming these amounts to be fully satisfied by Caputo's previous settlement with SafeNet; and ordering him to pay a civil penalty of $250,000.


• Greenman, Wilroy, and Pasko each consented to the entry of judgments permanently enjoining them from violating Sections 17(a)(2) and 17(a)(3) of the Securities Act and Exchange Act Rules 13b2-1 and 13b2-2, and from aiding and abetting violations of the reporting, books and records, and internal controls provisions. Greenman consented to a judgment finding him liable to pay disgorgement of $45,000 plus prejudgment interest, but based on his sworn financial statements and other documents submitted to the Commission, waiving disgorgement, except for $15,000, and not imposing a civil penalty. Wilroy and Pasko consented to judgments ordering them to pay civil penalties of $25,000 and $15,000 respectively.


• In addition, Mueller, Greenman, Wilroy, and Pasko each consented to the issuance of administrative orders suspending them from appearing or practicing before the Commission as accountants, with the right to apply for reinstatement after (i) five years for Mueller, (ii) two years for Greenman and Wilroy, and (iii) one year for Pasko.

The settlements with SafeNet, Greenman, and Pasko take into account the cooperation with the SEC's investigation by SafeNet and these individuals. All of the settlements of the civil action are subject to the approval of the United States District Court for the District of Columbia.

The Commission acknowledges the assistance of the United States Attorney's Office for the Southern District of New York and the United States Postal Inspection Service. For additional information, please see Litigation Release Nos. 20752 (Sept. 29, 2008) and 20221 (Aug. 1, 2007). [SEC v. SafeNet, Inc., et al., United States District Court for the District of Columbia, Civil Action No. 09-2117 (RWR), D.D.C] (LR-21290; AAE Rel. 3068)

Default Judgment of Permanent Injunction and Other Relief Entered Against Defendant Osvaldo Pitters

The Commission announced that on Nov. 10, 2009, the United States District Court for the Southern District of Florida entered a Default Judgment of Permanent Injunction and Other Relief against Defendant Osvaldo Pitters. The default judgment enjoins Pitters from violating Section 17(a) of the Securities Act of 1933, and Sections 10(b), 12, 13(a), 13(b)5, 13(b)(2)(A), 13(b)(2)(B), 15(d), 20(e), and 21(d)(2) of the Securities Exchange Act of 1934, and Rules 10b-5, 12b-20, 13a-1, 13a-13, 13a-14, 13(b)2-1, 13(b)2-2, 13d-1, and 16a-3, thereunder. In addition, the default judgment also bars Pitters from acting as an officer or director of any issuer that has a class of securities registered pursuant to Section 12 and 15(d) of the Exchange Act.

Previously, the Commission filed a complaint against Pitters and others alleging fictitious revenues from purported computer hardware sales and management services on the financial statements of VoIP, Inc., a small, publicly-traded Internet telecommunications company. [SEC v. Osvaldo Pitters et al., Civil Action No. 09-20957-CIV-GRAHAM/TORRES] (LR-21291)

INVESTMENT COMPANY ACT RELEASES

Neuberger Berman Management LLC, et al.

An order has been issued on an application filed by Neuberger Berman Management LLC, et al., under Section 6(c) of the Investment Company Act for an exemption from Section 19(b) of the Act and Rule 19b-1 under the Act. The order permits certain registered closed-end management investment companies to make periodic distributions of long-term capital gains with respect to their outstanding common stock as frequently as monthly in any taxable year, and as frequently as distributions are specified by or in accordance with the terms of such investment companies' preferred stock. (Rel. IC-28994 - November 10)

Pioneer Diversified High Income Trust, et al.

An order has been issued on an application filed by Pioneer Diversified High Income Trust, et al., under Section 6(c) of the Investment Company Act for an exemption from Section 19(b) of the Act and Rule 19b-1 under the Act. The order permits certain registered closed-end investment companies to make periodic distributions of long-term capital gains with respect to their outstanding common stock as frequently as monthly in any taxable year, and as frequently as distributions are specified by or in accordance with the terms of any outstanding preferred stock that such investment companies may issue. (Rel. IC-28995 - November 10)

SELF-REGULATORY ORGANIZATIONS

Immediate Effectiveness of Proposed Rule Changes

A proposed rule change, as modified by Amendment No. 1, filed by The NASDAQ Stock Market (SR-NASDAQ-2009-097) to add seventy-five options classes to the Penny Pilot Program 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 November 16. (Rel. 34-60965)

A proposed rule change filed by the National Stock Exchange (SR-NSX-2009-06) to Amend the Fee and Rebate Schedule to exclude, for purposes of calculating the Automatic Execution Mode of order interaction (AutoEx) liquidity adding displayed order rebate, an ETP Holder's lowest full trading day's liquidity adding volume from the determination of the ETP Holder's "liquidity adding average daily volume" 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 November 16. (Rel. 34-60979)

Approval of Proposed Rule Changes

The Commission approved a proposed rule change (SR-NYSEAmex-2009-63), as modified by Amendment No. 1, filed by NYSE Amex permitting an affiliation with NYFIX Millennium L.L.C. and NYFIX Securities Corporation pursuant to Rule 19b-4 under the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of November 16. (Rel. 34-60968)

The Commission approved a proposed rule change (SR-NYSE-2009-96), as modified by Amendment No. 2, filed by the New York Stock Exchange permitting an affiliation with NYFIX Millennium L.L.C. and NYFIX Securities Corporation pursuant to Rule 19b-4 under the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of November 16. (Rel. 34-60969)

The Commission approved a proposed rule change (SR-CBOE-2009-068) submitted by the Chicago Board Options Exchange pursuant to Rule 19b-4 under the Securities Exchange Act of 1934 to amend the $1 strike program to allow low-strike LEAPS. Publication is expected in the Federal Register during the week of November 16. (Rel. 34-60978)

Proposed Rule Changes

NYSE Arca filed a proposed rule change (SR-NYSEArca-2009-95) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 relating to listing and trading of shares of ETFS Platinum Trust. Publication is expected in the Federal Register during the week of November 16. (Rel. 34-60970)

NYSE Arca filed a proposed rule change (SR-NYSEArca-2009-94) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 relating to listing and trading of shares of ETFS Palladium Trust. Publication is expected in the Federal Register during the week of November 16. (Rel. 34-60971)

The Commission noticed a proposed rule change (SR-NYSEAmex-2009-81) submitted by NYSE Amex (NYSE Amex) pursuant to Rule 19b-4 under the Securities Exchange Act of 1934 amending NYSE Amex Equities Rule 123C to modify the procedures for its closing process and making conforming changes to NYSE Amex Equities Rules 13 and 15. Publication is expected in the Federal Register during the week of November 16. (Rel. 34-60973)

The Commission noticed a proposed rule change (SR-NYSE-2009-111) submitted by the New York Stock Exchange pursuant to Rule 19b-4 under the Securities Exchange Act of 1934 amending NYSE Rule 123C to modify the procedures for its closing process and making conforming changes to NYSE Rules 13 and 15. Publication is expected in the Federal Register during the week of November 16. (Rel. 34-60974)

SECURITIES ACT REGISTRATIONS

• Latest Securities Act registrations (TXT)

RECENT 8K FILINGS

• Latest 8-K filings (TXT)

http://www.sec.gov/news/digest/2009/dig111209.htm