SEC News Digest

ENFORCEMENT PROCEEDINGS

In the Matter of Kenneth Mueller, CPA

On Dec. 9, 2009, the Commission issued an Order Instituting Public Administrative Proceedings Pursuant to Rule 102(e) of the Commission's Rules of Practice, Making Findings, and Imposing Remedial Sanctions (Order) against Kenneth Mueller. The Order finds that Mueller was the Chief Financial Officer (CFO) of SafeNet, Inc. from June 2004 until he resigned on April 6, 2006. On Dec. 2, 2009, a final judgment was entered by consent against Mueller, permanently enjoining him from violations of Section 17(a) of the Securities Act of 1933, Sections 10(b), 13(b)(5), 14(a), and 16(a) of the Securities Exchange Act of 1934 (Exchange Act), and Rules 10b-5, 13a-14, 13b2-1, 13b2-2, 14a-9, 16a-3, and Regulation G thereunder, and from 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 thereunder. The final judgment was entered in the civil action, Securities and Exchange Commission v. SafeNet, Inc., et al., Civil Action No. 09-2117 (RWR), in the United States District Court for the District of Columbia. The final judgment also prohibited Mueller from acting as an officer or director of any publicly traded company for a period of five years, and ordered him to pay disgorgement of $37,000, plus prejudgment interest of $13,561, and a civil penalty of $75,000.

The Order finds that the Commission's complaint alleged that, from the fourth quarter of 2000 through May 2006, SafeNet, through the actions of its former senior officers, engaged in a scheme to backdate option grants to senior executives and other 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. The Commission's complaint alleged that, in late 2004, Mueller learned of SafeNet's backdating practice. According to the complaint, after learning of the 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 other SafeNet employees. In addition, the complaint alleged that, from the third quarter of 2004 through the second quarter of 2005, SafeNet, through the actions of Mueller, another former officer, and three former accountants, engaged in a scheme to assist SafeNet in meeting or exceeding quarterly earnings per share targets through the use of improper accounting adjustments.

Based on the above, the Order suspends Mueller from appearing or practicing before the Commission as an accountant, with the right to apply for reinstatement after five years. Mueller consented to the issuance of the Order without admitting or denying any of the findings in the Order, except as to the Commission's jurisdiction over him and the entry of the permanent injunction against him. (Rel. 34-61146; AAE Rel. 3075; File No. 3-13708)

In the Matter of Clinton Ronald Greenman, CPA

On Dec. 9, 2009, the Commission issued an Order Instituting Public Administrative Proceedings Pursuant to Rule 102(e) of the Commission's Rules of Practice, Making Findings, and Imposing Remedial Sanctions (Order) against Clinton Ronald Greenman. The Order finds that Greenman was SafeNet's Corporate Controller from December 2002 through December 2004, and from December 2004 through May 26, 2005, was the Director for the Americas Regional Operating Center at SafeNet. On Dec. 2, 2009, a final judgment was entered by consent against Greenman, permanently enjoining him from violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933, and Rules 13b2-1 and 13b2-2 under the Securities Exchange Act of 1934 (Exchange Act), and from aiding and abetting violations of 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. The final judgment was entered in the civil action, Securities and Exchange Commission v. SafeNet, Inc., et al., Civil Action No. 09-2117 (RWR), in the United States District Court for the District of Columbia. The final judgment also found Greenman liable to pay disgorgement of $45,000, plus prejudgment interest of $13,960, but waived these payments, except for $15,000, and did not impose a civil penalty based on Greenman's sworn financial statement and supporting materials provided to the Commission.

The Order finds that the Commission's complaint alleged that, from the third quarter of 2004 through the second quarter of 2005, SafeNet, through the conduct of its former employees, engaged in a scheme to assist SafeNet in meeting or exceeding quarterly earnings per share targets through the use of improper accounting adjustments. The complaint alleged that Greenman and others made, or caused others to make, certain improper accounting adjustments in SafeNet's books and records. The complaint also alleged that, as a result of these inappropriate adjustments, SafeNet's periodic reports, registration statements, and press releases contained materially misstated financial results and materially false and misleading information concerning SafeNet's financial condition.

Based on the above, the Order suspends Greenman from appearing or practicing before the Commission as an accountant, with the right to apply for reinstatement after two years. Greenman consented to the issuance of the Order without admitting or denying any of the findings in the Order, except as to the Commission's jurisdiction over him and the entry of the permanent injunction against him. (Rel. 34-61147; AAE Rel. 3076; File 3-13709)

In the Matter of John Wilroy, CPA

On Dec. 9, 2009, the Commission issued an Order Instituting Public Administrative Proceedings Pursuant to Rule 102(e) of the Commission's Rules of Practice, Making Findings, and Imposing Remedial Sanctions (Order) against John Wilroy. The Order finds that Wilroy was the Worldwide Controller of SafeNet, Inc., from December 2004 through July 29, 2005. On Dec. 2, 2009, a final judgment was entered by consent against Wilroy, permanently enjoining him from violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933, and Rules 13b2-1 and 13b2-2 under the Securities Exchange Act of 1934 (Exchange Act), and from aiding and abetting violations of 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. The final judgment was entered in the civil action, Securities and Exchange Commission v. SafeNet, Inc., et al., Civil Action No. 09-2117 (RWR), in the United States District Court for the District of Columbia. The final judgment also ordered Wilroy to pay a civil penalty of $25,000.

The Order finds that the Commission's complaint alleged that, from the third quarter of 2004 through the second quarter of 2005, SafeNet, through the conduct of its former employees, engaged in a scheme to assist SafeNet in meeting or exceeding quarterly earnings per share targets through the use of improper accounting adjustments. The complaint alleged that Wilroy and others made, or caused others to make, certain improper accounting adjustments in SafeNet's books and records. The complaint also alleged that, as a result of these inappropriate adjustments, SafeNet's periodic reports, registration statements, and press releases contained materially misstated financial results and materially false and misleading information concerning SafeNet's financial condition.

Based on the above, the Order suspends Wilroy from appearing or practicing before the Commission as an accountant, with the right to apply for reinstatement after two years. Wilroy consented to the issuance of the Order without admitting or denying any of the findings in the Order, except as to the Commission's jurisdiction over him and the entry of the permanent injunction against him. (Rel. 34-61148; AAE Rel. 3077; File No. 3-13710)

In the Matter of Gregory Pasko, CPA

On Dec. 9, 2009, the Commission issued an Order Instituting Public Administrative Proceedings Pursuant to Rule 102(e) of the Commission's Rules of Practice, Making Findings, and Imposing Remedial Sanctions (Order) against Gregory Pasko. The Order finds that Pasko was the Director of External Reporting of SafeNet, Inc., from January 2005 through May 2005. On Dec. 2, 2009, a final judgment was entered by consent against Pasko, permanently enjoining him from violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933, and Rules 13b2-1 and 13b2-2 under the Securities Exchange Act of 1934 (Exchange Act), and from aiding and abetting violations of 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. The final judgment was entered in the civil action, Securities and Exchange Commission v. SafeNet, Inc., et al., Civil Action No. 09-2117 (RWR), in the United States District Court for the District of Columbia. The final judgment also ordered Pasko to pay a civil penalty of $15,000.

The Order finds that the Commission's complaint alleged that, from the third quarter of 2004 through the second quarter of 2005, SafeNet, through the conduct of its former employees, engaged in a scheme to assist SafeNet in meeting or exceeding quarterly earnings per share targets through the use of improper accounting adjustments. The complaint alleged that Pasko and others made, or caused others to make, certain improper accounting adjustments in SafeNet's books and records. The complaint also alleged that, as a result of these inappropriate adjustments, SafeNet's periodic reports, registration statements, and press releases contained materially misstated financial results and materially false and misleading information concerning SafeNet's financial condition.

Based on the above, the Order suspends Pasko from appearing or practicing before the Commission as an accountant, with the right to apply for reinstatement after one year. Pasko consented to the issuance of the Order without admitting or denying any of the findings in the Order, except as to the Commission's jurisdiction over him and the entry of the permanent injunction against him. (Rel. 34-61149; AAE Rel. 3078; File No. 3-13711)

In the Matter of Moises Pacheco

On Dec. 11, 2009, the Commission announced issued an Order Instituting Administrative Proceeding Pursuant to Section 203(f) of the Investment Advisers Act of 1940, and Notice of Hearing (Order) against Moises Pacheco (Pacheco), based on the entry of a permanent injunction against Pacheco in the civil action entitled Securities and Exchange Commission v. Moises Pacheco, et al., Civil Action No. 09-CV-1355-W-RBB, in the U.S. District Court for the Southern District of California.

In the Order, the Division of Enforcement alleges that on Nov. 19, 2009, the U.S. District Court for the Southern District of California entered a judgment of permanent injunction and other relief by consent against Pacheco, permanently enjoining him from future violations of Sections 206(1), 206(2) and 206(4) of the Advisers Act or Rule 206(4)-8 thereunder.

In the Order, the Division of Enforcement further alleges that Pacheco was an officer and the sole director of Advanced Money Management, Inc. (AMM), a Nevada corporation, and controlled Business Development & Consulting Co. (BD&C), a California corporation; that AMM was the investment adviser to and general partner of AP Premium Value Fund I, a Nevada limited partnership, and BD&C was the investment adviser to and managing member of AP Premium Value Fund II, AP Premium Value Fund III, AP Premium Value Fund IV, and Capital Partnership Group, all of which are California limited liability companies; and that through his control of AMM and BD&C, Pacheco controlled and acted as investment adviser for all of the AP Premium Value Funds and CPG ("the Funds"), including making all investment decisions on their behalf.

The Division of Enforcement further alleges in the Order that the Commission's complaint in the civil action alleged that from January 2005 through June 2008, Pacheco, through AMM and BD&C, raised more than $14.7 million from more than 200 investors in the Funds. Pacheco told Fund investors that he had developed a lucrative investment strategy involving the purchase and sale of covered call options. Pacheco claimed that the Funds had generated returns ranging from 2.5% to 4% per month during their existence, and continued to claim that they generated returns in that range until January 2008, when he reduced the returns to 1.25% per month. In reality, from January 2005 through June 2008 - a span of 42 months - the Funds had net profits of $367,001 on the millions of dollars under their management, a return of about 1% per year. During the same time period, the Fund paid out more than $9.7 million in purported monthly profits to Fund investors. To bridge the enormous difference between the actual profits and the ersatz ones, Pacheco drew upon the only financial resource available to him - investor principal. Thus, Pacheco's representations that the monthly payments were funded with trading profits were false. In addition, Pacheco failed to disclose that he had dissipated a substantial portion of investor monies through a series of illicit transfers. Specifically, the complaint alleged that in September and October 2007, Pacheco transferred a total of $3 million from the Funds' brokerage accounts to a third party, Vision Quest Investments; that in November 2007, Vision Quest wired $10 million, including the $3 million provided by Pacheco, to another third party, Palladium Holding Company; that Palladium Holding Company subsequently transferred $5 million to a brokerage account it controlled and began exercising numerous short-sell transactions of Treasury bonds, steadily dissipating the assets in the brokerage account; and that Palladium Holding Company dispersed the remainder of the funds received from Vision Quest in a variety of ways having nothing to do with the purchase and sale of covered call options.

A hearing will be scheduled before an administrative law judge to determine whether the allegations contained in the Order are true, to provide Pacheco an opportunity to dispute the allegations, and to determine what, if any, remedial action is appropriate and in the public interest, pursuant to the Investment Advisers Act of 1940.

The Order requires that an Administrative Law Judge shall issue an initial decision no later than 210 days from the date of service of the Order, pursuant to Rule 360(a)(2) of the Commission's Rules of Practice. (Rel. IA-2960; File No. 3-13712)

Commission Sanctions Guy P. Riordan for Participating in New Mexico Kickback Scheme

The Commission has found that Guy P. Riordan, a former registered representative associated with Wachovia Securities, LLC, violated the antifraud provisions of the securities laws by making secret cash kickbacks to a New Mexico public official in exchange for obtaining securities business from the State of New Mexico. The Commission barred Riordan from associating with any broker or dealer, imposed a cease-and-desist order, required disgorgement of $938,353.78 (the amount in commissions and bonuses Riordan earned from the business), plus prejudgment interest, and assessed a $500,000 third-tier civil money penalty. The Commission also authorized the creation of a "fair fund," to include the disgorgement and penalty amounts assessed, for the benefit of the State of New Mexico.

The Commission found that, beginning in 1996, Riordan agreed to pay Michael Montoya, then the New Mexico State Treasurer, a kickback in return for being awarded the winning bid on agency security transactions New Mexico was using to invest public funds. Typical to their arrangement, according to the Commission's findings, after Riordan won a bid, he would meet Montoya "at a restaurant for lunch," where at some point "during the meal, they would retreat to the restroom and Riordan would pay Montoya the money." Evidence indicated, according to the Commission, that many of Riordan's winning bids were the "worst" bids submitted. The scheme ended in December 2002, at the conclusion of Montoya's term in office. Montoya, who testified against Riordan, was criminally convicted of extortion and sentenced to forty months in prison.

In sanctioning Riordan, the Commission stated that Riordan's conduct was egregious, "contribut[ing] to the corruption of a public official," and that "Riordan profited substantially from his involvement in the kickback scheme at the expense of the citizens of New Mexico." The Commission noted that the sanctions imposed should also "act as a warning to others in the security industry who might be tempted to pay kickbacks to public officials in return for securities business." (Rels. 33-9085; 34-61153; File No. 3-12829)

In the Matter of David G. Ghysels, et al.

An Administrative Law Judge has issued an Initial Decision in David G. Ghysels, Administrative Proceeding No. 3-13481. The Initial Decision finds that Respondents David G. Ghysels (Ghysels), Kenneth E. Mahaffy, Jr. (Mahaffy), and Linus N. Nwaigwe (Nwaigwe) were convicted on one count of conspiracy to commit securities fraud by the U.S. District Court for the Eastern District of New York on April 22, 2009, and that each was sentenced to prison, or probation, and ordered to forfeit the gross proceeds of his crime. The Initial Decision concludes that, pursuant to Section 15(b)(6) of the Securities Exchange Act of 1934, it is in the public interest to bar Ghysels, Mahaffy, and Nwaigwe from association with any broker or dealer and that, pursuant to Section 203(f) of the Investment Advisers Act of 1940, it is in the public interest to bar Ghysels and Mahaffy from association with any investment adviser. (Initial Decision No. 391; File No. 3-13481)

SELF-REGULATORY ORGANIZATIONS

Immediate Effectiveness of Proposed Rule Change

A proposed rule change (SR-Phlx-2009-100) filed by NASDAQ OMX PHLX relating to an Options Regulatory Fee 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 December 14. (Rel. 34-61133)

Accelerated Approval of Proposed Rule Change

The Commission granted accelerated approval of a proposed rule change submitted by the Chicago Board Options Exchange (SR-CBOE-2009-022), as modified by Amendment No. 1, to list and trade S&P 500 Dividend Index Options. Publication is expected in the Federal Register during the week of December 14. (Rel. 34-61136)

SECURITIES ACT REGISTRATIONS

• Latest Securities Act registrations (TXT)

RECENT 8K FILINGS

• Latest 8-K filings (TXT)

http://www.sec.gov/news/digest/2009/dig121109.htm