SEC News Digest

COMMISSION ANNOUNCEMENTS

SEC Adopts New Measures to Facilitate Director Nominations by Shareholders

The Securities and Exchange Commission today adopted changes to the federal proxy and other rules to facilitate the rights of shareholders to nominate directors to a company's board.

The new rules require companies to include the nominees of significant, long-term shareholders in their proxy materials, alongside the nominees of management. This "proxy access" is designed to facilitate the ability of shareholders to exercise their traditional rights under state law to nominate and elect members to company boards of directors.

Under the rules, shareholders will be eligible to have their nominees included in the proxy materials if they own at least 3 percent of the company's shares continuously for at least the prior three years.

"As a matter of fairness and accountability, long-term significant shareholders should have a means of nominating candidates to the boards of the companies that they own," said SEC Chairman Mary L. Schapiro. "Nominating a director candidate is not the same as electing a candidate to the board. I have great faith in the collective wisdom of shareholders to determine which competing candidates will best fulfill the responsibilities of serving as a director. The critical point is that shareholders have the ability to make this choice."

The SEC's approval of the new measures follows enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which provided the SEC with explicit authority to make rules addressing shareholder access to company proxy materials.

Under the new rules:

• Shareholders who otherwise are provided the opportunity to nominate directors at a shareholder meeting under applicable state or foreign law would be able to have their nominees included in the company proxy materials sent to all shareholders.

• Shareholders also have the ability to use the shareholder proposal process to establish procedures for the inclusion of shareholder director nominations in company proxy materials.

Application of the new access rules to the smallest public companies — those that are defined as "smaller reporting companies" under SEC rules — will be deferred for three years.

Generally, the new rules will become effective 60 days after their publication in the Federal Register.

FACT SHEET: FACILITATING RIGHTS OF SHAREHOLDERS TO NOMINATE DIRECTORS

SEC Open Meeting
August 25, 2010

The Proxy Voting Process

Public companies across the country hold elections to select members of their boards of directors, which oversee the management of the company. In most cases, the existing directors nominate the slate of candidates and the company sends information to the shareholders through so-called proxy materials, so those shareholders have information to vote their shares.

But, because the shareholders rarely have any input into the slate of candidates, they are not always able to vote for the person they believe may be best suited to fill the post.

In many situations, companies permit shareholders to show up to the annual shareholder meeting where the election occurs and nominate different candidates than the ones on the ballot. But, by then it is too late to be meaningful because the proxy votes will have already been cast.

As a result, shareholders who wish to nominate their own candidates today must launch a proxy fight in which they mail out their own ballots.

Recent Developments Regarding Proxy Access

Last year, the Commission proposed amendments to its rules that would provide shareholders with a meaningful ability to exercise their state law rights to nominate and elect directors.

Since then, the SEC has received and reviewed more than 600 public comments about its proposal.

And, more recently, Congress passed a new financial reform law that specifically states the SEC has authority to adopt rules that require companies to include shareholder board nominees in company proxy materials.

The Rules

The rules approved today are the result of careful consideration of the comments received during the public comment process. Under the final rules, shareholders who otherwise are provided the opportunity to nominate directors at a shareholder meeting under applicable state or foreign law will be able to have their nominees included in the company proxy materials sent to all shareholders.

Shareholders also have the ability to use the shareholder proposal process to establish procedures for the inclusion of shareholder director nominations in company proxy materials.

INCLUDING NOMINEES IN THE COMPANY'S PROXY MATERIALS

New Exchange Act Rule 14a-11 — companies are required, under certain circumstances, to include a shareholder nominee or nominees for director in company proxy materials

Under the rule, companies will be required to include shareholder nominees for director in the company's proxy materials, if the shareholder meets certain conditions, and if the shareholders are not otherwise prohibited — either by applicable state or foreign law or a company's governing documents — from nominating a candidate for election as a director.

Which companies are subject to the rule?

The rule applies to all Exchange Act reporting companies, including investment companies, other than companies whose only public securities are debt securities.

"Smaller reporting companies" are subject to the rule, but it does not apply to them until after a three-year phase-in period.

Foreign companies that come within the definition of "foreign private issuer" are not currently subject to the SEC's proxy rules and would not be subject to these new rules. Foreign companies that do not qualify as foreign private issuers would be subject to the rules.

Which shareholders will be able to have their nominees included in the proxy materials?

Shareholders will be eligible to have their nominee included in the proxy materials if:

• They own at least 3 percent of the total voting power of the company's securities that are entitled to be voted on the election of directors at the annual meeting. Shareholders will be able to aggregate holdings to meet this threshold.
• Shareholders will be required to have held their shares for at least three years and will be required to continue to own at least the required amount of securities through the date of the meeting at which directors are elected.
• Shareholders will not be eligible to use the rule if they are holding the securities for the purpose of changing control of the company, or to gain a number of seats on the board of directors that exceeds the number of nominees a company is required to include under new Rule 14a-11.

What requirements will a shareholder's nominee be required to meet to be nominated?

The nominee's candidacy or, if elected, board membership must not violate applicable laws and regulations.

The nominee must satisfy objective independence standards of the applicable national securities exchange or national securities association.

Neither the nominating shareholder nor the nominee may have a direct or indirect agreement with the company regarding the nomination of the nominee.

There will be no restrictions on the relationship between the nominating shareholder and the nominee.

How many nominees for director will a shareholder be able to include in company proxy materials?

A shareholder will be able to include no more than one nominee, or a number of nominees that represents up to 25 percent of the company's board of directors, whichever is greater.

For example, if the board is comprised of three members, one shareholder nominee could be included in the proxy materials. If the board is comprised of eight members, up to two shareholder nominees could be included in the proxy materials.

What has to be disclosed about nominating shareholders and their nominees?

The nominating shareholder will be required to file with the Commission and submit to the company a new Schedule 14N, which would be publicly available on EDGAR, the SEC's electronic filing system. The Schedule 14N will require, among other things, disclosure of the amount and percentage of the voting power of the securities owned by the nominating shareholder, the length of ownership, and a statement that the nominating shareholder intends to continue to hold the securities through the date of the meeting.

The disclosure provided in the Schedule 14N will identify the nominee or nominees, include biographical information about the nominee(s), and include a description of the nature and extent of the relationships between the nominating shareholder and nominee(s) and the company. In addition, the Schedule 14N will require several certifications relating to eligibility and the accuracy of the information provided. A nominating shareholder can also include a statement of support for its nominee in the Schedule 14N.

The company will include in its proxy materials disclosure concerning the nominating shareholder, as well as the shareholder nominee or nominees, that is similar to the disclosure currently required in a contested election.

Will the nominating shareholder be liable for information provided to the company?

As is the case when directors nominate candidates, the nominating shareholder or group will be liable for any false or misleading statements it makes about the nomination, regardless of whether the statements are included in the company's proxy materials.

A company will not be responsible for information provided by the shareholder and then reproduced in the company's proxy materials.

ALLOWING SHAREHOLDERS PROPOSALS

Amended Exchange Act Rule 14a-8(i)(8) — companies must include in their proxy materials, under certain circumstances, proposals that seek to establish a procedure in the company's governing documents for the inclusion of shareholder director nominees in company proxy materials.

Currently, Exchange Act Rule 14a-8(i)(8) permits companies to exclude shareholder proposals that relate to elections. Under the amendment, if adopted, this so-called "election exclusion" would be narrowed, thereby allowing in the proxy materials more shareholder proposals regarding elections.

Specifically, shareholder proposals by qualifying shareholders that seek to establish a procedure in the company's governing documents for the inclusion of shareholder director nominees in company proxy materials would not be excludable under amended Rule 14a-8(i)(8). A company would not be required to include in its proxy materials a shareholder proposal that seeks to limit the availability of Rule 14a-11.

Which shareholders will be able to submit a shareholder proposal?

The current eligibility provisions of Rule 14a-8 would continue to apply. Those provisions require that a shareholder proponent have continuously held at least $2,000 in market value (or 1 percent, whichever is less) of the company's securities entitled to be voted on the proposal at the meeting, for a period of one year prior to submitting the proposal.

When will the new rules and amendments start to apply?

There are several variables that will impact this question in the first year. Generally, the new rules will be effective 60 days after publication in the Federal Register.

Proxy Access: For Rule 14a-11, shareholders must submit nominees no later than 120 days before the anniversary date of the mailing of the company's proxy statement in the prior year. Shareholders will be able to submit nominees for inclusion in the next year's proxy statement if the 120 day deadline falls on or after the effective date of the rules. For example, if the rules become effective on Nov. 1, 2010, Rule 14a-11 generally would be available at companies that mailed their proxy statement for their last annual meeting no earlier than March 1, 2010.

Shareholder Proposals: For Rule 14a-8, to have a proposal included in a company's proxy materials, a shareholder must submit the proposal no later than 120 days before the anniversary date of the mailing of the company's proxy statement in the prior year. Shareholders will be able to submit proposals for inclusion in the next year's proxy statement if the 120 day deadline falls on or after the effective date of the rules. (Press Rel. 2010-155)

ENFORCEMENT PROCEEDINGS

In the Matter of Thompson Consulting, Inc.

On Aug. 25, 2010, the Commission issued an Order Instituting Administrative Proceedings Pursuant to Section 203(e) of the Investment Advisers Act of 1940, Making Findings and Imposing Remedial Sanctions (Order) against Thompson Consulting, Inc. (TCI). The Order finds that on Aug. 17, 2010, a final judgment was entered by consent against TCI, permanently enjoining it from future violations of Sections 17(a)(2) and (3) of the Securities Act of 1933, and Section 206(2) of the Investment Advisers Act of 1940, in the civil action entitled SEC v. Thompson Consulting, Inc., et al., Civil Action Number 2:08-CV-171, in the United States District Court for the District of Utah.

Based on the above, the Order revokes TCI's registration as an investment adviser. TCI consented to the issuance of the Order without admitting or denying any of the findings except that TCI admitted the entry of the final judgment. (Rel. IA-3073; File No. 3-14019)

In the Matter of E. Sherman Warner

On Aug. 25, 2010, the Commission issued an Order Instituting Administrative Proceedings Pursuant to Section 203(f) of the Investment Advisers Act of 1940, Making Findings and Imposing Remedial Sanctions (Order) against E. Sherman Warner (Warner). The Order finds that on Aug. 17, 2010, a final judgment was entered by consent against Warner, permanently enjoining him from future violations of Sections 17(a)(2) and (3) of the Securities Act of 1933 in the civil action entitled Securities and Exchange Commission v. Thompson Consulting, Inc., et al., Civil Action Number 2:08-CV-171, in the United States District Court for the District of Utah.

Based on the above, the Order bars Warner from association with any investment adviser. Warner consented to the issuance of the Order without admitting or denying any of the findings except that he admitted the entry of the final judgment. (Rel. IA-3074; File No. 3-14020)

In the Matter of Kyle J. Thompson

On Aug. 25, 2010, the Commission issued an Order Instituting Administrative Proceedings Pursuant to Section 203(f) of the Investment Advisers Act of 1940, Making Findings and Imposing Remedial Sanctions (Order) against Kyle J. Thompson (Thompson). The Order finds that on Aug. 17, 2010, a final judgment was entered by consent against Thompson, permanently enjoining him from future violations of Sections 17(a)(2) and (3) of the Securities Act of 1933 in the civil action entitled Securities and Exchange Commission v. Thompson Consulting, Inc., et al., Civil Action Number 2:08-CV-171, in the United States District Court for the District of Utah.

Based on the above, the Order bars Thompson from association with any investment adviser. Thompson consented to the issuance of the Order without admitting or denying any of the findings except that he admitted the entry of the final judgment. (Rel. IA-3075; File No. 3-14021)

In the Matter of David C. Condie

On Aug. 25, 2010, the Commission issued an Order Instituting Administrative Proceedings Pursuant to Section 203(f) of the Investment Advisers Act of 1940, Making Findings and Imposing Remedial Sanctions (Order) against David C. Condie (Condie). The Order finds that on Aug. 17, 2010, a final judgment was entered by consent against Condie, permanently enjoining him from future violations of Sections 17(a)(2) and (3) of the Securities Act of 1933 in the civil action entitled Securities and Exchange Commission v. Thompson Consulting, Inc., et al., Civil Action Number 2:08-CV-171, in the United States District Court for the District of Utah.

Based on the above, the Order bars Condie from association with any investment adviser. Condie consented to the issuance of the Order without admitting or denying any of the findings except that he admitted the entry of the final judgment. (Rel. IA-3076; File No. 3-14022)

SEC Freezes Assets of Two Madrid, Spain-Based Traders for Insider Trading Around the Public Announcement of BHP's Tender Offer for Potash Corp.

On Aug. 20, 2010, the Honorable Matthew F. Kennelly of the United States District Court for the Northern District of Illinois issued under seal a temporary restraining order and asset freeze against Juan Jose Fernandez Garcia (Garcia) and Luis Martin Caro Sanchez (Sanchez), both residents of Madrid, Spain. The emergency court order obtained late Friday by the SEC and unsealed by the Court today freezes approximately $1.1 million in assets and, among other things, grants expedited discovery and prohibits Garcia and Sanchez from destroying evidence.

The Commission's complaint alleges that Garcia and Sanchez engaged in insider trading in call options contracts of Potash Corp. of Saskatchewan, Inc. (Potash) just prior to an Aug. 17, 2010 public announcement by Potash that it had received and rejected an unsolicited proposal from BHP Billiton Plc (BHP) to acquire Potash's stock for $130 per share. In the complaint, the Commission alleges that on Tuesday, August 17, it was publicly announced that BHP had made an unsolicited $38.6 billion offer to purchase all of the stock of Potash for $130 per share in cash. The acquisition share price represented a 16% premium above Potash's closing price of $112.15 on Monday, August 16. The complaint alleges that Garcia, the Head of European Equity Derivatives Research at Banco Santander, S.A., a Spanish banking group advising BHP on its bid, was in possession of material, nonpublic information regarding BHP's offer to acquire Potash while he purchased, from August 12 to 16, 2010, approximately 282 call option contracts for Potash stock, the majority of which were scheduled to expire on Aug. 21, 2010. The complaint further alleges that all but 6 of the call option contracts purchased by Garcia were out-of-the-money.

The complaint also alleges that on August 12 and 13, 2010, Sanchez, while in possession of material, nonpublic information regarding BHP's offer to acquire Potash, purchased approximately 331 out-of-the-money call option contracts for Potash stock in an account at Interactive Brokers, LLC, the same U.S. brokerage firm through which Garcia traded his Potash call option contracts. The complaint further alleges that Sanchez's contracts were set to expire within weeks of the purchase date. The Commission alleges that neither individual had previously traded this year in Potash securities through his account at Interactive Brokers.

The complaint charges each of the defendants with violations of Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3 thereunder. In addition to the emergency relief already obtained, the Commission is seeking preliminary and permanent injunctions against future violations of the above provisions of the federal securities laws, disgorgement of ill-gotten gains with prejudgment interest, and civil penalties. SEC v. Juan Jose Fernandez Garcia and Luis Martin Caro Sanchez, Case No. 10 C 5268 (N.D. Ill.)] (LR-21631)

SEC Obtains Judgments Against Stock Distributors Stephen Carnes, Lawrence Powalisz and Their Companies

The Securities and Exchange Commission announced today that on May 17 and August 17, the Honorable Gregory A. Presnell of the United States District Court for the Middle District of Florida entered Final Judgments against Stephen W. Carnes, Lawrence A. Powalisz, and their companies K&L International Enterprises, Inc., Signature Leisure, Inc., and Signature Worldwide Advisors, LLC. The Commission's complaint alleged that the defendants engaged in a scheme to evade the registration provisions of the federal securities laws by selling billions of shares of stock issued by microcap companies to the investing public without adhering to the registration requirements of Section 5 of the Securities Act of 1933. The defendants consented to entry of the Final Judgments without admitting or denying the allegations in the complaint.

The Final Judgments permanently enjoin the defendants from violating Sections 5(a) and (c) of the Securities Act, bar them for three years from participating in an offering of penny stock under Section 20(g) of the Securities Act, and require them pay in installments within one year disgorgement, prejudgment interest, and civil penalties. Carnes agreed to pay disgorgement of $818,261, plus prejudgment interest, of which $716,904 is payable jointly and severally with Worldwide Advisors, and a civil penalty of $100,000. Worldwide Advisors agreed to pay disgorgement of $716,904, plus prejudgment interest, jointly and severally with Carnes, plus a civil penalty of $50,000. Signature Leisure agreed to pay disgorgement of $900,162, plus prejudgment interest, and a civil penalty of $50,000. Powalisz agreed to pay disgorgement of $3,748,563, plus prejudgment interest, jointly and severally with K&L International, and a civil penalty of $150,000. K&L International agreed to pay disgorgement of $6,242,049, plus prejudgment interest, of which $3,748,563 is payable jointly and severally with Powalisz, and a civil penalty of $150,000.

The Commission's case against the two remaining defendants, Jared E. Hochstedler, and his company, Enzyme Environmental Solutions, Inc., is still pending. [SEC v. K&L International Enterprises, Inc., et al., Case No. 6:09-cv-1638-Orl-31KRS (M.D. Fla.)] (LR-21632)

ADDITIONS AND CORRECTIONS

A summary in the August 24th issue of the Digest entitled "In the Matter of Robert T. Harvey" should have appeared as follows:

In the Matter of Robert T. Harvey

On Aug. 24, 2010, the Commission issued an Order Instituting Administrative Proceedings Pursuant to Section 203(f) of the Investment Advisers Act of 1940, Making Findings, and Imposing Remedial Sanctions (Order) against Robert T. Harvey. The Order finds that on July 29, 2010, a judgment was entered against Robert T. Harvey, permanently enjoining him, by consent, from future violations of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and from violations of Sections 206(1) and 206(2) of the Advisers Act, in the civil action entitled SEC v. Jeanne M. Rowzee, et al., Civil Action Number, SACV 08-1025 DOC (ANx) in the United States District Court for the Central District of California, Southern Division.

The Order further finds that the Commission's complaint alleged, among other things, that Jeanne Rowzee, James Halstead, and Robert T. Harvey each took part in the fraudulent offer and sale of $52.7 million of securities to approximately 150 investors, in which they falsely represented that the investors' funds would be used to purchase PIPE investments which were described as "a private investment being converted into a public entity." The complaint alleged that Harvey raised at least $7.9 million from approximately forty-one (41) investors by selling membership interests in Harvest Income, beginning in June 2005. The complaint alleged that Harvey was an investment adviser to Harvest Income and advised it as to the purported value of PIPEs and the advisability of such investments. The complaint further alleged that Harvey gave prospective investors a copy of the Harvest Income operating agreement, which identified him as the company's sole manager and gave him complete control over the company's business, including its investment decisions. The complaint alleged that Harvey purportedly relied on the private placement exemption under the Securities Act and the safe harbor provisions of Regulation D, and further alleged that at least thirteen (13) of the Harvest Income investors were unsophisticated and unaccredited as defined in Rule 501 of Regulation D under the Securities Act, 17 C.F.R. § 230.501. The complaint alleged that Harvey represented to investors that Jeanne M. Rowzee was an experienced securities attorney who had access to lucrative private investment opportunities through brokers that she controlled, and promised returns of 19% to 54% within 12 to 16 weeks. The complaint further alleged that Harvey created a PowerPoint presentation which he gave to some prospective investors in which, among other things, Harvey represented to investors that he, Rowzee, and a certified public accountant constituted a "loan committee" that evaluated every new potential PIPE for Harvest Income. The complaint further alleged that, in fact, no such loan committee existed. The complaint alleged that the membership units in Harvest Income were securities, and that Harvey sold unregistered securities.

Based on the above, the Order bars Harvey from association with any investment adviser. Harvey 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, the subject matter of these proceedings, and the entry of the judgment in the civil injunctive action, which he admitted. (Rel. IA-3072A; File No. 3-14017)

SELF-REGULATORY ORGANIZATIONS

Immediate Effectiveness of Proposed Rule Change

A proposed rule change filed by NASDAQ OMX PHLX (SR-Phlx-2010-111) relating to a change to the automated opening system 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 August 23. (Rel. 34-62759)

Proposed Rule Change

NASDAQ OMX PHLX filed a proposed rule change (SR-Phlx-2010-112) relating to trade reporting pursuant to Rule 19b-4 under the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of August 23. (Rel. 34-62760)

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