SEC News Digest

ENFORCEMENT PROCEEDINGS

In the Matter of David N. Kenneally, CPA

On September 10, the Commission issued an Order Instituting Administrative Proceedings Pursuant to Rule 102(e) of the Commission's Rules of Practice, Making Findings, and Imposing Remedial Sanctions (Order) against David N. Kenneally, CPA (inactive) (Kenneally).

In the Order, the Commission finds that on Aug. 17, 2010, the United States District Court for the Central District of California entered a final judgment, by consent, permanently enjoining Kenneally from violating Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 10b-5, 13b2-1, and 13b2-2 thereunder, and from aiding and abetting violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-11, and 13a-13 thereunder.

The Commission's complaint alleges, among other things, that in the second and third quarters of 2006, Kenneally, contrary to Generally Accepted Accounting Principles, implemented changes to New Century's method for estimating its loan repurchase obligation and failed to ensure that New Century's backlog of pending loan repurchase requests were properly accounted for, resulting in an understatement of New Century's repurchase reserve and a material overstatement of New Century's financial results.

Based on the above, the Order suspends Kenneally from appearing or practicing before the Commission as an accountant, with the right to apply for reinstatement after three years from the date of the Order. Kenneally consented to the issuance of the Order without admitting or denying any of the findings in the Order except he admitted the entry of the injunction. [SEC v. Morrice, et al., Civil Action No. CV 09-1426-DPP (C.D. Cal.)] (LR-21327). (Rel. 34-62888; AAE Rel. 3183; File No. 3-14040)

In the Matter of Patti M. Dodge, CPA

On September 10, the Commission issued an Order Instituting Administrative Proceedings Pursuant to Rule 102(e) of the Commission's Rules of Practice, Making Findings, and Imposing Remedial Sanctions (Order) against Patti M. Dodge, CPA (Dodge).

In the Order, the Commission finds that on Aug. 17, 2010, the United States District Court for the Central District of California entered a final judgment, by consent, permanently enjoining Dodge from violating Section 17(a) of the Securities Act of 1933, Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 10b-5, 13b2-1, 13b2-2, and 13a-14 thereunder, and from aiding and abetting violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-11, and 13a-13 thereunder.

The Commission's complaint alleges, among other things, that New Century's second and third quarter 2006 Forms 10-Q and two late 2006 private stock offerings contained false and misleading statements regarding its subprime mortgage business. The complaint further alleges that Dodge knew about certain negative trends in New Century's loan portfolio from reports she received and that she participated in the disclosure process, but she did not take adequate steps to ensure that the negative trends were properly disclosed. In addition, the Commission's complaint alleges that in the second and third quarters of 2006, New Century, contrary to Generally Accepted Accounting Principles, changed its method for estimating its loan repurchase obligation and failed to account for a backlog of pending loan repurchase requests, resulting in an understatement of New Century's repurchase reserve and a material overstatement of New Century's financial results. The complaint further alleges that Dodge was told of the methodology changes and the backlog of repurchase requests but did not ensure that they were properly accounted for and disclosed.

Based on the above, the Order suspends Dodge from appearing or practicing before the Commission as an accountant, with the right to apply for reinstatement after three years from the date of the Order. Dodge consented to the issuance of the Order without admitting or denying any of the findings in the Order except she admitted the entry of the injunction. [SEC v. Morrice, et al., Civil Action No. CV 09-1426-DPP (C.D. Cal.)] (LR-21327). (Rel. 34-62889; AAE Rel. 3184; File No. 3-14041)

In the Matter of Brad A. Morrice, Esq.

On September 10, the Commission issued an Order Instituting Administrative Proceedings Pursuant to Rule 102(e) of the Commission's Rules of Practice, Making Findings, and Imposing Remedial Sanctions (Order) against Brad A. Morrice, Esq. (Morrice).

In the Order, the Commission finds that on Aug. 13, 2010, the United States District Court for the Central District of California entered a final judgment, by consent, permanently enjoining Morrice from violating Section 17(a) of the Securities Act of 1933 and Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 10b-5, 13b2-2, and 13a-14 thereunder, and from aiding and abetting violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-11, and 13a-13 thereunder.

The Commission's complaint alleges, among other things, that New Century's second and third quarter 2006 Forms 10-Q and two late 2006 private stock offerings contained false and misleading statements regarding its subprime mortgage business. The complaint further alleges that Morrice knew about certain negative trends from reports he received and that he participated in the disclosure process, but he did not take adequate steps to ensure that the negative trends were properly disclosed.

Based on the above, the Order suspends Morrice from appearing or practicing before the Commission as an attorney, with the right to apply for reinstatement after three years from the date of the Order. Morrice consented to the issuance of the Order without admitting or denying any of the findings in the Order except he admitted the entry of the injunction. [SEC v. Morrice, et al., Civil Action No. CV 09-1426-DPP (C.D. Cal.)] (LR-21327). (Rel. 34-62890; File No.3-14042)

Commission Sustains Disciplinary Action Against Joseph Ricupero

The Commission sustained FINRA disciplinary action against Joseph Ricupero, formerly a general securities representative, general securities principal, financial and operations principal, limited representative equity trader, chief executive officer, chief compliance officer, and sole director of America First Associates, a former FINRA member firm.

The Commission found that Ricupero violated Procedural Rule 8210 and Conduct Rule 2110 by failing to respond to FINRA's requests for information regarding the Firm's securities holdings and trial balances for January and February 2006. The Commission also found that Ricupero violated other FINRA rules by failing to file three FOCUS reports, an annual audit report, and an application for approval to sell the Firm's customer accounts. In sustaining the bar imposed on Ricupero, the Commission stressed the importance of associated persons' obligation to provide FINRA with information pursuant to a request under Rule 8210, noting that, "to impose a bar as the standard sanction for a complete failure to respond to [FINRA] information requests 'reflects the judgment that, in the absence of mitigating factors, a complete failure to cooperate with FINRA requests for information or testimony is so fundamentally incompatible with [FINRA]'s self regulatory function that the risk to the markets and investors posed by such misconduct is properly remedied by a bar.'" According to the Commission, the bar will "prevent Ricupero and deter others from failing to respond to [FINRA] requests for information and protect the investing public by encouraging timely cooperation." (Rel. 34-62891; File No. 3 13727)

Commission Dismisses Application for Review of Removal of Wind Energy America Inc.'s Securities from OTCBB

The Commission has dismissed an application for review by Wind Energy America Inc., an issuer formerly listed on the OTC Bulletin Board Service (OTCBB). The Commission determined that Wind Energy's securities were ineligible for continued quotation pursuant to FINRA Rule 6530 because the company failed to timely file a required annual or quarterly report three times in two years. The Commission determined that the removal of Wind Energy's securities from the OTCBB was consistent with the purposes of the Exchange Act. The Commission emphasized that "the availability of current financial information is critical to the proper operation of the financial markets," and that the "the failure 'to provide timely reports and adequate financial information [is] offensive to the central purpose of the periodic reporting system Congress established through the Exchange Act.'" (Rel. 34-62894; File No. 3-13782)

In the Matter of Prospero Group

On September 13, the Commission issued an Order Instituting Proceedings (Order) Pursuant to Section 12(j) of the Securities Exchange Act of 1934 (Exchange Act) against Prospero Group (Respondent). The Division of Enforcement alleges that the Respondent is delinquent in its periodic filings with the Commission and has failed to comply with Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder, having failed to file any periodic reports since an overdue filing of its Form 10-K for the fiscal year ended March 31, 2009.

A hearing will be held by an Administrative Law Judge to determine whether the allegations contained in the Order are true, to afford the Respondent an opportunity to establish any defenses to such allegations, and to determine whether it is necessary or appropriate for the protection of investors to suspend for a period not exceeding twelve months, or to revoke the registration of each class of securities of the Respondent registered pursuant to Section 12 of the Exchange Act. The Order requires the Administrative Law Judge to issue an initial decision no later than 120 days from the date of service of this Order, pursuant to Rule 360(a)(2) of the Commission's Rules of Practice. (Rel. 34-62895; File No. 3-14043)

In the Matter of KMJ Corbin & Company, LLP, Kendall G. Merkley, CPA, and Anthony J. Price, CPA

On September 13, the Commission issued an Order Instituting Public Administrative and Cease-and-Desist Proceedings Pursuant to Sections 4C and 21C of the Securities Exchange Act of 1934 and Rule 102(e) of the Commission's Rules of Practice, Making Findings, and Imposing Remedial Sanctions (Order) against California accounting firm KMJ Corbin & Company LLP (KMJ) and KMJ audit partners Kendall G. Merkley, CPA (Merkley) and Anthony J. Price, CPA (Price). The Order finds that:

1. KMJ, Merkley, and Price departed from applicable professional standards and conducted improper reviews and audits of Home Solutions of America, Inc.'s (HSOA) financial statements for the years ended December 31, 2004, 2005, and 2006;

2. KMJ and Price departed from the applicable professional standards and conducted improper reviews of HSOA's financial statements for the quarters ended March 31 and June 30, 2007;

3. KMJ, Merkley, and Price engaged in improper professional conduct through repeated instances of unreasonable conduct; and

4. Merkley was a cause of HSOA's books and records and reporting violations and caused KMJ to issue inaccurate audit reports.

Based on these findings, the Commission censures KMJ pursuant to Rules 102(e)(1)(ii) and 102(e)(1)(iv)(B)(2) of the Commission's Rules of Practice and Section 4C of the Exchange Act. In consenting to the Order, KMJ undertakes to evaluate its existing policies and procedures, to provide additional audit-related and fraud-detection training to all staff participating on public company audits, and not to accept new public company audit clients before the later of March 31, 2011, or the date KMJ certifies compliance with such undertakings. The Commission also orders Merkley to cease and desist from committing or causing any violations and any future violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act, Rules 13a-1 and 13a-13 thereunder, and Regulation S-X Rule 2-02(b)(1). Finally, the Commission denies Merkley and Price the privilege of appearing or practicing before the Commission as accountants, with the right to request reinstatement after three years and two years, respectively. KMJ, Merkley, and Price each consented to the issuance of the Order without admitting or denying the Commission's findings.

The Commission previously sued HSOA and certain of its former officers and employees in SEC v. Home Solutions of America, Inc., et al., Civil Action No. 3:09-cv-02269-N (N.D. Tex. Nov. 30, 2009). For additional information, see Litigation Release 21314 (Nov. 30, 2009). (Rel. 34-62899; AAE Rel. 3185; File No. 3-14044)

Commission Dismisses Review Proceeding Brought by Leslie A. Arouh

The Commission dismissed the review proceeding of a FINRA-member firm's application to continue in membership if it employed Leslie A. Arouh as a registered representative. The member firm's application was necessary because Arouh is subject to a statutory disqualification. In dismissing the review proceeding, the Commission found that FINRA's denial of the application was in accordance with FINRA's rules and that FINRA applied those rules in a manner consistent with the Securities Exchange Act of 1934. Specifically, the Commission found that FINRA, in rejecting the member firm's application, appropriately considered the seriousness of Arouh's intervening misconduct in associating with two registered broker-dealer firms while a Commission-imposed bar order was in effect and the inadequacies of the member firm's proposed supervisory plan. (Rel. 34-62898; File No. 3 13701)

SEC v. Thomas J. Dudchik

On Sept. 3, 2010, the Commission filed a Complaint for an Order under Section 20(c) of the Securities Act of 1933 (Securities Act) against Defendant Thomas J. Dudchik of East Haddam, Connecticut. The Complaint alleges that Dudchik failed to comply with the terms of a final order of the Commission issued on Jan. 29, 2009 in In the Matter of Thomas J. Dudchik, Administrative Proceeding File No. 3-12943. The Commission's order found Dudchik in violation of the registration provisions of the federal securities laws in connection with his sales of stock in Stinger Systems, Inc. in November 2004, ordered him to cease and desist from further violations of Section 5 of the Securities Act, and ordered him to pay $50,000 in disgorgement and prejudgment interest. Dudchik has not paid any portion of the amount ordered by the Commission. The Commission's Complaint seeks an order from the U.S. District Court requiring Dudchik to comply with the terms of the Commission's order against him. [SEC v. Thomas J. Dudchik, Civil Action No. 3:10-cv-1408-WWE (D.Conn.)] (LR-21645)

INVESTMENT COMPANY ACT RELEASES

Tri-Continental Corporation, et al.

A notice has been issued giving interested persons until Oct. 4, 2010, to request a hearing on an application filed by Tri-Continental Corporation, 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 would permit certain registered closed-end management investment companies to make periodic distributions of long-term capital gains (i) with respect to their common stock as frequently as monthly in any one taxable year, and (ii) with respect to their preferred stock as often as specified by or determined in accordance with the terms of such preferred stock. (Rel. IC-29415 - September 10)

SELF-REGULATORY ORGANIZATIONS

Immediate Effectiveness of Proposed Rule Changes

A proposed rule change filed by NASDAQ OMX PHLX to establish fees for NASDAQ OMX PSX (SR-Phlx-2010-120) 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 13. (Rel. 34-62876)

A proposed rule change, as modified by Amendment No. 1, filed by the Chicago Board Options Exchange to change the transaction fees for 51 securities on CBSX (SR-CBOE-2010-079) 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 13. (Rel. 34-62878)

Proposed Rule Changes

The Commission issued notice of filing of proposed rule change filed by Chicago Board Options Exchange (SR-CBOE-2010-080), as modified by Amendment No. 1, under Rule 19b-4 of the Securities Exchange Act of 1934 to trade options on leveraged exchange-traded notes and to broaden the definition of "Futures-Linked Securities". Publication is expected in the Federal Register during the week of September 13. (Rel. 34-62880)

Approval of Proposed Rule Changes

The Commission issued an order approving a proposed rule change, as modified by Amendment No. 1 thereto, submitted by NASDAQ OMX PHLX (SR-Phlx-2010-79) pursuant to Rule 19b-4 under the Securities Exchange Act of 1934 relating to the establishment of NASDAQ OMX PSX as a platform for trading NMS stocks. Publication is expected in the Federal Register during the week of September 13. (Rel. 34-62877)

The Commission has approved a proposed rule change (SR-FINRA-2010-033) submitted by the Financial Industry Regulatory Authority relating to expanding the pilot rule for trading pauses due to extraordinary market volatility to the Russell 1000® Index and specified exchange traded products. Publication is expected in the Federal Register during the week of September 13. (Rel. 34-62883)

The Commission has approved proposed rule changes (SR-BATS-2010-018; SR-BX-2010-044; SR-CBOE-2010-065; SR-CHX-2010-14; SR-EDGA-2010-05; SR-EDGX-2010-05; SR-ISE-2010-66; SR-NASDAQ-2010-079; SR-NYSE-2010-49; SR-NYSEAmex-2010-63; SR-NYSEArca-2010-61; SR-NSX-2010-08) submitted by BATS Exchange; EDGA Exchange; EDGX Exchange; NASDAQ OMX BX; International Securities Exchange; New York Stock Exchange; NYSE Amex; NYSE Arca; The NASDAQ Stock Market; Chicago Stock Exchange; National Stock Exchange; and Chicago Board Options Exchange relating to expanding the pilot rule for trading pauses due to extraordinary market volatility to the Russell 1000® Index and specified exchange traded products. Publication is expected in the Federal Register during the week of September 13. (Rel. 34-62884)

The Commission has approved proposed rule changes (SR-BATS-2010-016; SR-BX-2010-040; SR-CBOE-2010-056; SR-CHX-2010-13; SR-EDGA-2010-03; SR-EDGX-2010-03; SR-ISE-2010-62; SR-NASDAQ-2010-076; SR-NSX-2010-07; SR-NYSE-2010-47; SR-NYSEAmex-2010-60; SR-NYSEArca-2010-58), submitted by BATS Exchange; NASDAQ OMX BX; Chicago Board Options Exchange; Chicago Stock Exchange; EDGA Exchange; Exchange; International Securities Exchange; The NASDAQ Stock Market; National Stock Exchange; New York Stock Exchange; NYSE Amex;; and NYSE Arca, pursuant to Rule 19b-4 under the Securities Exchange Act of 1934, relating to clearly erroneous transactions. Publication is expected in the Federal Register during the week of September 13. (Rel. 34-62886)

SECURITIES ACT REGISTRATIONS

• Latest Securities Act registrations (TXT)

RECENT 8K FILINGS

• Latest 8-K filings (TXT)

http://www.sec.gov/news/digest/2010/dig091310.htm