SEC News Digest

RULES AND RELATED MATTERS

Facilitating Shareholder Director Nominations

In June 2009, the Securities and Exchange Commission proposed changes to the federal proxy rules in "Facilitating Shareholder Director Nominations," Release Nos. 33-9046; 34-60089; IC-28765; File No. S7-10-09 (June 10, 2009), 74 FR 29024 (June 18, 2009) and the comment period closed on Aug. 17, 2009. The Commission is re-opening the comment period to permit interested persons to comment on additional data and related analyses that have been included in the public comment file. (Rels. 33-9086; 34-61161; IC-29069; File No. S7-10-09)

ENFORCEMENT PROCEEDINGS

Commission Dismisses Rule 102(e) Proceedings Against Kevin Hall, CPA, and Rosemary Meyer, CPA

The Commission has dismissed proceedings brought against Kevin Hall, CPA, and Rosemary Meyer, CPA (together, Respondents) pursuant to Rule 102(e)(1) of the Commission's Rules of Practice. The proceedings charged that Hall and Meyer engaged in improper professional conduct in connection with the fiscal year (FY) 1999 audit of the financial statements of U.S. Foodservice, Inc. (USF) and the interim review of USF's second quarter FY 2000 financial statements.

The Commission rejected Respondents' contention that a finding of improper professional conduct within the meaning of Rule 102(e) may not be based on repeated instances of unreasonable conduct in connection with the audit of a single account. The Commission found, however, that the record did not establish that Respondents' conduct with respect to the audit procedures at issue was unreasonable. The Commission confirmed that an interim review may serve as a basis for Commission discipline under Rule 102(e), but held that the record did not establish, by a preponderance of the evidence, that Respondents' conduct during the interim review in question was an unreasonable departure from applicable professional standards. The Commission found various due process claims raised by Respondents to be without merit. (Rel. 34-61162; AAE Rel. 3080; File No. 3-12208)

In the Matter of Stephen Jay Mermelstein

The Commission issued an Order Instituting Public Administrative Proceedings, Making Findings, and Imposing Remedial Sanctions Pursuant to Section 203(f) of the Investment Advisers Act of 1940 against Stephen Jay Mermelstein. The Order finds that Mermelstein, the former Chief Operating Officer of a formerly registered investment adviser, Ark Asset Management, Co., Inc. (Ark), failed reasonably to supervise a portfolio manager who engaged in fraudulent trade allocation practices during the years 2000 through 2003. As a result of this fraudulent conduct, Ark realized at least $19 million of ill-gotten gains.

Based on the above, the Order suspends Mermelstein from association in a supervisory capacity with any investment adviser for a period of six months and orders Mermelstein to pay a civil penalty of $50,000. (Rel. IA-2961; File No. 3-13713)

In the Matter of Ark Asset Management Co., Inc.

The Commission issued an Order Instituting Cease-and-Desist Proceedings Pursuant to Section 203(k) of the Investment Advisers Acts of 1940 and Notice of Hearing (Order) against Ark Asset Management Co., Inc. (Ark). The Order alleges that Ark engaged in fraudulent trade allocation practices by favoring certain proprietary accounts over certain client accounts in the allocation of securities between 2000 and 2003. Ark did not disclose this scheme to its clients. As a result of this fraudulent conduct, Ark realized at least $19 million of ill-gotten gains in the form of performance fees from the proprietary accounts. Additionally, Ark's Form ADV filings during the relevant period were materially misleading. Ark also committed books and records violations by failing to make and keep true and accurate order memoranda.

Based on the above, the Order directs that a public hearing shall be convened at a time and place to be fixed not earlier than 30 days nor later than 60 days after service of the notice before an Administrative Law Judge to take evidence and determine whether the allegations are true, and that an Administrative Law Judge shall issue an initial decision within 300 days of the date of service of the Order. (Rel. IA-2962; File No. 3-13714)

In the Matter of Mark A. Lefkowitz

On Dec. 25, 2009, 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 Mark A. Lefkowitz.

The Order finds that from 2003 to the present, Lefkowitz was the principal of Compass Capital Group, Inc., which acted as a securities broker-dealer. Neither Compass Capital Group, Inc. nor Lefkowitz were registered with the Commission as a broker or dealer. On Nov. 30, 2009, a final judgment was entered by consent against Lefkowitz, permanently enjoining him from violating Sections 5(a) and 5(c) of the Securities Act of 1933 (Securities Act), Sections 10(b), 13(d), and 15(a) of the Exchange Act, and Rules 10b-5 and 13d-1 thereunder, in the civil action entitled Securities and Exchange Commission v. Compass Capital Group, Inc., et al., Case No. 2:08-cv-00457-ECR-PAL, in the United States District Court for the District of Nevada.

The Commission's complaint in the above-noted civil injunctive action alleged that, among other things, Lefkowitz effected transactions in, and induced the purchase and sale of, securities of 21st Century Technologies, Inc. without being registered as a broker or dealer with the Commission or associated with a broker or dealer registered with the Commission.

Based on the above, the Order bars Lefkowitz from association with any broker or dealer. Lefkowitz consented to the issuance of the Order without admitting or denying any of the findings except as to the entry of the final judgment. (Rel. 34-61166; File No. 3-13715)

SELF-REGULATORY ORGANIZATIONS

Immediate Effectiveness of Proposed Rule Changes

A proposed rule change (SR-NYSEArca-2009-112) filed by NYSE Arca to add Commentary .01 to Rule 6.47 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. 34-61138)

A proposed rule change (SR-NYSEAmex-2009-87) filed by NYSE Amex to add Commentary .01 to Rule 934.3NY 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. 34-61139)

A proposed rule change (SR-NASDAQ-2009-109) filed by The NASDAQ Stock Market to update Rule 1160 to reflect the availability of the FINRA Contact System to Nasdaq members that are not also members of FINRA 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 December 14. (Rel. 34-61151)

A proposed rule change (SR-ISE-2009-105), filed by the International Securities Exchange relating to the Registered Representative Fee and 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. 34-61154)

A proposed rule change filed by NYSE Arca (SR-NYSEArca-2009-109) revising its telephone policies 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 December 14. (Rel. 34-61156)

A proposed rule change filed by Financial Industry Regulatory Authority relating to waiver and credit of certain FINRA/Nasdaq Trade Reporting Facility and OTC Reporting Facility fees (SR-FINRA-2009-088) 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. 34-61160)

Approval of Proposed Rule Change

The Commission approved a proposed rule change submitted by the Chicago Board Options Exchange pursuant to Rule 19b-4 under the Securities Exchange Act of 1934 (SR-CBOE-2009-048) regarding authority over C2 Options Exchange, Incorporated. Publication is expected in the Federal Register during the week of December 14. (Rel. 34-61140)

Proposed Rule Change

The Commission issued a notice of filing of a proposed rule change by the Municipal Securities Rulemaking Board (MSRB) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934, consisting of amendments to Rule G-37 (Political Contributions and Prohibitions on Municipal Securities Business) and Rule G-8 (Books and Records to be Made by Brokers, Dealers and Municipal Securities Dealers) (SR-MSRB-2009-18). Publication is expected in the Federal Register during the week of December 14. (Rel. 34-61155)

Approval of Accelerated Delivery of Supplement to the Options Disclosure Document

The Commission granted approval to the accelerated delivery of a supplement to the options disclosure document submitted by The Options Clearing Corporation (SR-ODD-2009-01) pursuant to Rule 9b-1 under the Securities Exchange Act of 1934 regarding dividend index options. Publication is expected in the Federal Register during the week of December 14. (Rel. 34-61150)

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