SEC News Digest

COMMISSION ANNOUNCEMENTS

Commission Meetings

Closed Meeting - Friday, September 10, 2010 - 10:00 a.m.

The subject matter of the Closed Meeting scheduled for Friday, Sept. 10, 2010, will be: institution and settlement of injunctive actions; institution and settlement of administrative proceedings; adjudicatory matters; 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.

RULES AND RELATED MATTERS

SEC Adopts Temporary Rule Requiring Municipal Advisors to Register With Agency

On September 2, the Securities and Exchange Commission announced that it has adopted a temporary rule requiring municipal advisors to register with the SEC by Oct. 1, 2010, a deadline established by the newly-enacted Dodd-Frank Wall Street Reform and Consumer Protection Act.

Municipal advisors provide advice to state and local governments and other borrowers involved in the issuance of municipal securities. The advice typically relates to municipal derivatives, guaranteed investment contracts, investment strategies or the issuance of municipal securities. Municipal advisors also solicit business from a state or local government for a third party.

Municipal advisors can now access and complete the new registration form (Form MA-T) on the SEC's website. Municipal advisors are encouraged to begin the registration process as soon as possible because of the impending registration deadline and the requirement that applicants first obtain an ID and password.

"We have acted expeditiously to create a temporary registration system to gather key data and provide transparency about municipal advisors," said SEC Chairman Mary L. Schapiro. "As a result, regulators, investors, and state and local governments will have a much better understanding of those who provide services in the municipal market."

The SEC implemented the registration provision on an interim basis in order for municipal advisors to meet the new law's October 1 registration deadline. The SEC expects to propose a permanent rule later this year.

Information filed by municipal advisors will be made publicly available on the SEC's website by the registration deadline.

Subject to certain exemptions, the definition of municipal advisor under the Dodd-Frank Act includes financial advisors, guaranteed investment contract brokers, third-party marketers, placement agents, solicitors, finders, and certain swap advisors that provide municipal advisory services.

Form MA-T requires municipal advisors to provide identifying and contact information, and select from a list of municipal advisory activities in which they engage. Municipal advisors also are required to provide disciplinary history information similar to what the SEC obtains from registered broker-dealers and investment advisers. Municipal advisors will be required to amend the form whenever any identifying and contact information or disciplinary information has become inaccurate in any way, and whenever a municipal advisor wishes to withdraw from temporary registration.

This regulation is the first adopted by the SEC to implement the requirements of the Dodd-Frank Act.

The Commission and its staff have already taken several other actions stemming from the new law, including seeking public comment regarding the ongoing study of the obligations of brokers, dealers, and investment advisers; issuing guidance interpreting how the "value of the primary residence" should be determined for purposes of calculating an investor's net worth; seeking public comment about various definitions in connection with over-the-counter derivatives; holding a staff roundtable, jointly with the CFTC staff, regarding the governance of clearing facilities and conflicts; and posting job announcements for many new positions required by the legislation, including 25 positions related to the new Office of Credit Ratings.

In addition, the SEC is making it easier for the public to provide comments as it sets out to make rules required under the new law. Under a new process, the public can send comments online even before the agency proposes its regulatory reform rules and amendments (Public Comment Page for SEC Initiatives Under Dodd-Frank Act). (Press Rel. 2010-162)

ENFORCEMENT PROCEEDINGS

SEC Settles Accounting Fraud Charges Against Former Senior Lucent Sales Executive

On Aug. 17, 2010, the United States District Court for the District of New Jersey entered final judgment against Nina Aversano, former President of North America Service Provider Networks and former corporate officer of Lucent Technologies Inc. (Lucent), arising out her role in an accounting fraud action that the Commission previously filed against Lucent and ten individuals. Aversano was the remaining defendant in this action. The Commission alleged that Aversano entered into side agreements with certain of Lucent's distributors that granted the distributors rights and privileges beyond those contained in their respective distribution agreements. Those side agreements made it improper for Lucent to recognize revenue, and caused Lucent to materially overstate its pre-tax income for fiscal year 2000.

Without admitting or denying the allegations in the Commission's Amended Complaint, Aversano consented to the entry of the order, which permanently enjoins her from aiding and abetting violations of the anti-fraud provisions of the federal securities laws, and from violating, or aiding and abetting the violation of, the books and records, internal controls, and reporting provisions of the federal securities laws. Specifically, Aversano is enjoined from aiding and abetting violations of Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B) of the Securities Exchange Act of 1934 (Exchange Act) and Exchange Act Rules 10b-5, 12b-20, 13a-11 and 13a-13, and from directly violating Section 13(b)(5) of the Exchange Act and Exchange Act Rules 13b2-1 and 13b2-2. In addition, Aversano was ordered to pay a civil penalty in the amount of $100,000 and to: (1) not seek or become an officer or director of any public company for one year following the date of entry of the Final Judgment; (2) resign immediately from the audit committee of New Jersey Resources Corporation; and (3) discontinue her relationship with the Board of Directors of New Jersey Resources at the earlier of [a] termination by the company, or [b] the expiration of her current term in January 2011.

For further information, see LR-21551 (June 9, 2010), LR-19502 (Dec. 20, 2005), LR-19437 (Oct. 20, 2005), and LR-18715 (May 17, 2004). [SEC v. Lucent Technologies, Inc., et al., Civil Action No. 04-2315, WHW, D. N.J.] (LR-21639)

SEC Charges Officer and Employee of Milwaukee Corporation in $30 Million Embezzlement

On Aug. 31, 2010, the Commission filed a civil action in the U.S. District Court of the Eastern District of Wisconsin charging Sujata Sachdeva and Julie Mulvaney with accounting fraud, books and records violations and related misconduct arising from Sachdeva's embezzlement of over $30 million from their employer, Koss Corporation.

The Commission's complaint alleges that, since at least 2004, Sachdeva - the former Principal Accounting Officer, Secretary and Vice-President of Finance at Koss - stole over $30 million from Koss. Sachdeva used the embezzled funds to finance an extravagant lifestyle, including lavish spending sprees at department stores, designer boutiques, jewelry stores, and other high-end retailers. Sachdeva and Mulvaney - Koss's senior accountant - concealed and facilitated the theft from Koss by preparing materially false accounting records. Mulvaney, working in concert with Sachdeva, prepared false journal entries to disguise Sachdeva's misappropriation of funds. Sachdeva and Mulvaney attempted to hide the embezzlement on Koss's balance sheet and income statement by overstating assets, expenses, and cost of sales, and by understating liabilities and sales. Based on the fraudulent records prepared by Sachdeva and Mulvaney, Koss prepared materially false financial statements and filed materially false current, quarterly, and annual reports with the Commission. After discovering the embezzlement, Koss amended and restated its financial statements for fiscal years 2008 and 2009 and the first three quarters of fiscal year 2010.

The Commission's complaint seeks an order to permanently enjoin Sachdeva from violating Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 and Exchange Act Rules 10b-5, 13b2-1 and 13b2-2, 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. Similarly, the Commission's complaint seeks an order to permanently enjoin Mulvaney from violating Sections 13(b)(5) of the Exchange Act and Exchange Act Rule 13b2-1, from aiding and abetting violations of Section 10(b) of the Exchange Act and Exchange Act Rule 10b-5, 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. Further, the Commission seeks an order directing Sachdeva and Mulvaney each to disgorge their ill-gotten gains obtained through their misconduct, plus prejudgment interest thereon, and to pay a civil money penalty. Finally, the Commission seeks an order permanently barring Sachdeva from acting as an officer or director of any public company.

On July 27, 2010, Sachdeva entered into a plea agreement with the United States Attorney's Office for the Eastern District of Wisconsin in a parallel criminal proceeding and pled guilty to six counts of wire fraud. Sachdeva admitted her multi-million-dollar theft from Koss, and admitted her scheme to falsify the Koss's accounting records to hide her embezzlement. Sachdeva is scheduled to be sentenced on Nov. 18, 2010. [SEC v. Sujata Sachdeva and Julie Mulvaney, Civil Case No. 10-CV-0747, USDC, E.D., Wisc.] (LR-21640; Press Rel. 2010-160)

SEC Charges New Jersey Investment Adviser in Multi-Million Dollar Offering Fraud

On September 2, the Commission filed a complaint in the District of New Jersey against Sandra Venetis, a Branchburg, N.J.-based investment adviser and three of her firms, Systematic Financial Services, Inc., Systematic Financial Associates, Inc., and Systematic Financial Services, LLC, with operating a multi-million dollar offering fraud involving the sale of phony promissory notes to investors, many of whom are retired or unsophisticated in investments.

The Commission's complaint alleges that Venetis and the three entities that she founded, owned, or controlled have obtained at least $11 million from investors since approximately 1997. Systematic Financial Associates Inc. is an investment adviser, Systematic Financial Services LLC is an accounting and tax preparation firm, and Systematic Financial Services Inc. is an entity Venetis created to conduct the fraudulent offerings. Venetis, acting on behalf of the three entities, solicited and obtained funds from clients and others to invest in promissory notes, fixed income investments, or other side investments.

The Commission's complaint alleges that Venetis told some investors that the promissory notes were guaranteed by the Federal Deposit Insurance Corporation and would earn interest of approximately 6 to 11 percent per year that would be tax-free due to a loophole in the tax code. She also told investors that she would use their money to fund loans to doctors that would be backed by Medicare reimbursement payments to those doctors. Instead of making investments, Venetis looted investor funds to pay business debts and personal expenses accrued from international travel, gambling, and home mortgages and property taxes. She also funneled cash to her relatives.

The complaint alleges that the representations made by Venetis to investors were entirely false and the promissory notes and other offerings were unsupported by any investments, assets, or related revenues. Venetis simply fabricated the names and signatures of "doctors" or forged signatures of other people she claimed were recipients of the loans. Venetis concealed from investors that she used their funds to pay her home mortgage and property taxes, purchase a home for her daughter, finance improvements on a home owned by her brother, pay her own gambling debts, and pay for trips to such destinations as Alaska, Italy, France, India, and the Caribbean.

The complaint charges Venetis, Systematic Financial Associates, Inc., Systematic Financial Services, LLC, and Systematic Financial Services, Inc. with unregistered sales of securities in violation of the Securities Act of 1933 and with violations of the antifraud provisions of the Securities Act and the Securities Exchange Act of 1934. The SEC also charged Venetis and Systematic Financial Associates, Inc. with violations of the antifraud provisions of the Investment Advisers Act of 1940. In addition, the SEC's complaint names three relief defendants for the purposes of recovering investor assets now in their possession: Jennifer Venetis (Venetis's daughter); Kevin Persley (Venetis's brother); and Venetis LLC (an entity owned and controlled by Venetis).

Venetis and the entities have agreed to settle the SEC's charges and have consented to all of the relief that the SEC seeks in its complaint, including the entry of a court order enjoining them from future violations of the above provisions of the securities laws, ordering the payment of disgorgement of ill-gotten gains with prejudgment interest, financial penalties, an asset freeze, accountings, and the appointment of an independent monitor. The settlement will defer the determination of the amount of the monetary relief to a later date.

Venetis and Systematic Financial Associates Inc. also agreed to settle related administrative actions by the Commission that will bar Venetis from association with any investment adviser or broker or dealer, and revoke the registration of the firm. [Securities and Exchange Commission v. Sandra Venetis, Systematic Financial Services, Inc., Systematic Financial Associates, Inc., and Systematic Financial Services, LLC, 10 Civ. 4493, JAP, D.N.J.] (LR-21641; Press Rel. 2010-161)

SELF-REGULATORY ORGANIZATIONS

Immediate Effectiveness of Proposed Rule Changes

The National Securities Clearing Corporation filed a proposed rule change (File No. SR-NSCC-2010-08), which became effective upon filing pursuant to Section 19(b)(3)(A) of the Exchange Act, that amends NSCC rules to provide that any officer with a rank of Managing Director or higher is authorized to suspend or waive a NSCC rule or procedure. Publication of the proposal is expected to be made in the Federal Register during the week of September 6. (Rel. 34-62794)

The Depository Trust Company filed a proposed rule change (File No. SR-DTC-2010-11), which became effective upon filing pursuant to Section 19(b)(3)(A) of the Exchange Act, that amends DTC rules to provide that any officer with a rank of Managing Director or higher is authorized to suspend or waive a DTC rule or procedure. Publication of the proposal is expected to be made in the Federal Register during the week of September 6. (Rel. 34-62795)

The Fixed Income Clearing Corporation filed a proposed rule change (File No. SR-FICC-2010-06), which became effective upon filing pursuant to Section 19(b)(3)(A) of the Exchange Act, that amends FICC rules to provide that any officer with a rank of Managing Director or higher is authorized to suspend or waive a FICC rule, procedure or regulation of the Mortgage-Backed Securities Division. Publication of the proposal is expected to be made in the Federal Register during the week of September 6. (Rel. 34-62796)

A proposed rule change (SR-BX-2010-060), filed by NASDAQ OMX BX, Inc., relating to the 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 September 6. (Rel. 34-62804)

A proposed rule change (SR-ISE-2010-90) filed with the Commission by the International Securities Exchange, LLC relating to Fees and Rebates for Adding and Removing Liquidity 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 September 6. (Rel. 34-62805)

A proposed rule change filed by the New York Stock Exchange LLC (SR-NYSE-2010-62) extending the operation of NYSE's Supplemental Liquidity Providers Pilot 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 September 6. (Rel. 34-62813)

A proposed rule change filed by NYSE Amex LLC amending Rule 107B - NYSE Amex Equities extending the operation of its Supplemental Liquidity Providers Pilot (SR-NYSEAmex-2010-88) 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 September 6. (Rel. 34-62814)

A proposed rule change filed by BATS Exchange, Inc. to amend the name of a BATS Exchange routing strategy (SR-BATS-2010-022) 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 September 6. (Rel. 34-62816)

A proposed rule change filed by the International Securities Exchange, LLC (SR-ISE-2010-92) to amend the Exchange's MRVP 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 September 6. (Rel. 34-62817)

Proposed Rule Changes

The Commission issued notice of a proposed rule change submitted by NYSE Arca, Inc. (SR-NYSEArca-2010-79) pursuant to Rule 19b-4 under the Securities Exchange Act of 1934 relating to listing and trading of Cambria Global Tactical ETF. Publication is expected in the Federal Register during the week of September 6. (Rel. 34-62788)

NASDAQ OMX PHLX, Inc. has filed a proposed rule change (SR-Phlx-2010-118) pursuant to Rule 19b-4 under the Securities Exchange Act of 1934 relating to the $.50 Strike Price Program. Publication of the proposal is expected in the Federal Register during the week of September 6. (Rel. 34-62799)

The NASADAQ OMX BX, Inc. filed a proposed rule change (SR-BX-2010-059) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 to create a listing market on the Exchange. Publication is expected in the Federal Register during the week of September 6. (Rel. 34-62818)

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