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COMMISSION ANNOUNCEMENTSSEC Proposes Rules on “Say on Pay” and Proxy Vote ReportingThe Securities and Exchange Commission today proposed rules that would enable shareholders to cast advisory votes on executive compensation and "golden parachute" arrangements. The rules are called for by Section 951 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Under the proposed rules, public companies subject to the federal proxy rules would be required to:
The proposed rules would also require that institutional investment managers report their votes on executive compensation and "golden parachute" arrangements at least annually, unless the votes are otherwise required to be reported publicly by SEC rules. Last year, the Commission adopted rules requiring public companies with outstanding obligations under the Troubled Asset Relief Program to provide a shareholder vote on executive pay in their proxy solicitations. The Commission also adopted rules requiring enhanced disclosure of executive compensation by public companies in their proxy statements. Required Say-on-Pay Votes and Additional Disclosure RequirementsShareholder Approval of Executive CompensationUnder the proposed rules implementing the Dodd-Frank Act, companies subject to the federal proxy rules would be required to provide shareholders with an advisory vote on executive compensation. Section 14A(a) of the Exchange Act, which was added under the Dodd-Frank Act, specifies that these votes, generally known as say-on-pay votes, are required at least once every three years beginning with the first annual shareholders' meeting taking place on or after Jan. 21, 2011. The SEC's proposal requires companies to provide disclosure about the say-on-pay vote in the annual meeting proxy statement, including whether the vote is non-binding. The proposal also would require the company to disclose in the Compensation Discussion and Analysis, or CD&A, whether, and if so, how companies have considered the results of previous say-on-pay votes. Shareholder Approval of the Frequency of Shareholder Votes on Executive CompensationUnder the proposal, companies subject to the federal proxy rules also would be required to allow shareholders to vote on how often they would like to cast a say-on-pay vote, namely: every year, every other year, or once every three years. Shareholders would be allowed to cast this non-binding "frequency" vote at least once every six years beginning with the first annual shareholders' meeting taking place on or after Jan. 21, 2011. The proposals would require companies to provide disclosure about the frequency vote in the annual meeting proxy statement, including whether the vote is non-binding. Shareholder Approval and Disclosure of Golden Parachute ArrangementsUnder the proposal, companies also would be required to provide additional information about the compensation arrangements with executive officers in connection with merger transactions. Disclosures of these "golden parachute" arrangements would be required of all agreements and understandings that the acquiring and target companies have with the named executive officers of both companies. This "golden parachute" disclosure also would be required in connection with going-private transactions and third-party tender offers, so that the information is available for shareholders no matter the structure of the transaction. Further, the proposed rules would require companies to provide a shareholder advisory vote to approve certain "golden parachute" compensation arrangements in merger proxy statements. Institutional Investment Manager Reporting of VotesThe SEC also proposed rules that would require institutional investment managers to annually file with the SEC their votes on say-on-pay, frequency of say-on-pay votes, and "golden parachute" arrangements. The proposal would generally apply to every institutional investment manager that manages certain equity securities having an aggregate fair market value of at least $100 million. The manager would be required to identify securities voted, describe the executive compensation matters voted on, disclose the number of shares over which the manager held voting power and the number of shares voted, and indicate how the manager voted. The proposal would require institutional investment managers to report these votes annually not later than August 31 of each year, for the twelve months ended June 30. The SEC will seek public comment on the proposals. The comment period will close on Nov. 18, 2010. (Press Rel. 2010-198) Former Countrywide CEO Angelo Mozilo to Pay SEC’s Largest-Ever Financial Penalty Against a Public Company's Senior ExecutiveSettlement Permanently Bars Mozilo from Future Officer or Director ServiceOn October 15, the Securities and Exchange Commission announced that former Countrywide Financial CEO Angelo Mozilo will pay a record $22.5 million penalty to settle SEC charges that he and two other former Countrywide executives misled investors as the subprime mortgage crisis emerged. The settlement also permanently bars Mozilo from ever again serving as an officer or director of a publicly traded company. Mozilo’s financial penalty is the largest ever paid by a public company's senior executive in an SEC settlement. Mozilo also agreed to $45 million in disgorgement of ill-gotten gains to settle the SEC’s disclosure violation and insider trading charges against him, for a total financial settlement of $67.5 million that will be returned to harmed investors. Former Countrywide chief operating officer David Sambol agreed to a settlement in which he is liable for $5 million in disgorgement and a $520,000 penalty, and a three-year officer and director bar. Former chief financial officer Eric Sieracki agreed to pay a $130,000 penalty and a one-year bar from practicing before the Commission. In settling the SEC’s charges, the former executives neither admit nor deny the allegations against them. The penalties and disgorgement paid by Sambol and Sieracki will also be returned to harmed investors. “Mozilo’s record penalty is the fitting outcome for a corporate executive who deliberately disregarded his duties to investors by concealing what he saw from inside the executive suite — a looming disaster in which Countrywide was buckling under the weight of increasing risky mortgage underwriting, mounting defaults and delinquencies, and a deteriorating business model,” said Robert Khuzami, Director of the SEC's Division of Enforcement. John McCoy, Associate Regional Director of the SEC’s Division of Enforcement, added, “This settlement will provide affected shareholders significant financial relief, and reinforces the message that corporate officers have a personal responsibility to provide investors with an accurate and complete picture of known risks and uncertainties facing a company.” The settlement was approved by the Honorable John F. Walter, United States District Judge for the Central District of California in a court hearing held today. The SEC filed charges against Mozilo, Sambol, and Sieracki on June 4, 2009, alleging that they failed to disclose to investors the significant credit risk that Countrywide was taking on as a result of its efforts to build and maintain market share. Investors were misled by representations assuring them that Countrywide was primarily a prime quality mortgage lender that had avoided the excesses of its competitors. In reality, Countrywide was writing increasingly risky loans and its senior executives knew that defaults and delinquencies in its servicing portfolio as well as the loans it packaged and sold as mortgage-backed securities would rise as a result. The SEC’s complaint further alleged that Mozilo engaged in insider trading in the securities of Countrywide by establishing four 10b5-1 sales plans in October, November, and December 2006 while he was aware of material, non-public information concerning Countrywide’s increasing credit risk and the risk regarding the poor expected performance of Countrywide-originated loans. In addition to the financial penalties, Mozilo and Sambol consented to the entry of a final judgment that provides for a permanent injunction against violations of the antifraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934. Mozilo also consented to the entry of a permanent officer and director bar, and Sambol consented to the entry of a three-year bar. Sieracki agreed to a permanent injunction from further violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act, and consented to a one-year bar under the Commission’s Rule of Practice 102(e)(3). The SEC investigation that led to the filing and settlement of this enforcement action was conducted by Michele Wein Layne, Spencer E. Bendell, Lynn M. Dean, Paris Wynn, and Sam Puathasnanon. Together with Associate Regional Director John M. McCoy, that same team has been handling the SEC’s litigation. The SEC has filed many other enforcement actions involving mortgage-related securities and mortgage-related products linked to the financial crisis, including:
For more information about this enforcement action, contact: Robert S. Khuzami Lorin L. Reisner Rosalind Tyson John M. McCoy III (Press Rel. 2010-197) RULES AND RELATED MATTERSIndexed AnnuitiesThe Commission has issued a release withdrawing rule 151A under the Securities Act of 1933, which defines the terms “annuity contract” and “optional annuity contract” under the Act. On July 12, 2010, the United States Court of Appeals for the District of Columbia Circuit issued an order vacating the rule. (Rel. 33-9152) ENFORCEMENT PROCEEDINGSIn the Matter of JJF Management Company, Inc.On October 14, the United States Securities and Exchange Commission filed a civil injunctive action charging Jason K. Fifield, a resident of Temecula, California, with violations of the antifraud provisions of the federal securities laws. Specifically, the Commission’s complaint alleges that Fifield, using JJF Management Company, Inc., raised approximately $5.88 million through the sale of unsecured promissory notes issued to more than 70 investors. The complaint alleges Fifield promised to pay JJF Management’s investors interest at a rate of 7.5% per month, or 90% per year. The complaint also alleges that Fifield, through offering memoranda, made misrepresentations to investors about how investor funds would be used, and that Fifield misused investor funds by recklessly placing investor funds in “investments” inconsistent with the representations in the offering documents, by making Ponzi-like payments, and by making unauthorized, and exorbitant, payments to himself and to benefit himself and his relatives. Finally, the complaint charges Fifield with violations of the broker-dealer registration requirements of the federal securities laws and alleges Fifield sold securities without being registered with a registered broker or dealer. The complaint alleges Fifield violated Section 17(a) of the Securities Act of 1933 and Sections 10(b) and 15(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The Commission seeks the entry of a permanent injunction, disgorgement plus prejudgment interest and post-judgment interest, and civil money penalties. [SEC v. Jason K. Fifield, Civil Action No. CV10-7709 RGK (OPx) (C.D. Ca.)] (LR-21695) Court Enters Final Judgments against Brian N. Lines, Scott G.S. Lines, Anthony W. Wile, Wayne E. Wew (formerly Wayne E. Wile), Lines Overseas Management Ltd., LOM Securities (Bermuda) Ltd., LOM Securities (Bahamas) Ltd., LOM Securities (Cayman) Ltd., and LOM Capital Ltd. in Market Manipulation CaseThe Securities and Exchange Commission today announced that the Honorable Denise Cote of the United States District Court for the Southern District of New York entered judgments of permanent injunction and other relief against Brian N. Lines, Scott G.S. Lines, Anthony W. Wile, Wayne E. Wew, Lines Overseas Management Ltd., LOM Securities (Bermuda) Ltd., LOM Securities (Bahamas) Ltd., LOM Securities (Cayman) Ltd., and LOM Capital Ltd. on October 15, 2010. (The LOM companies collectively are referred to hereinafter as the “LOM Entities”). All of the foregoing defendants, with the exception of LOM Securities (Bahamas) Ltd. and LOM Securities (Cayman) Ltd., were enjoined by the Court from violating certain of the antifraud provisions of the federal securities laws, as described below. The Court also ordered broad ancillary relief against the defendants, including as to certain defendants, disgorgement, civil money penalties, and compliance with undertakings to not trade in penny stocks quoted on certain U.S. – based electronic quotation services and, for the LOM Entities, to not maintain accounts for U.S.-resident customers. Brian and Scott Lines and the LOM Entities were ordered to disgorge over $1.9 million in profits and prejudgment interest and pay civil penalties totalling $600,000. Without admitting or denying the Commission’s allegations, the defendants consented to the entry of the judgments against them. These judgments resolve the Commission’s claims against these defendants in a civil action that was filed on December 19, 2007, in which the Commission alleged that that these defendants had participated in a fraudulent scheme to manipulate the stock price of Sedona Software Solutions, Inc. (“SSSI”), and, except for Wile and Wew, also had participated in a second stock manipulation scheme involving SHEP Technologies, Inc. (“SHEP”) f/k/a Inside Holdings Inc. (“IHI”). In addition to entering permanent injunctions, the Court ordered Brian and Scott Lines, who are brothers and during the relevant time were the controlling persons of the LOM Entities, to pay, jointly and severally with the LOM Entities, disgorgement of $1,277,403, prejudgment interest of $654,918. The Court also imposed civil penalties in the following amounts: $450,000 for the LOM Entities, $100,000 for Brian Lines; and $50,000 for Scott Lines. In addition to entering permanent injunctions against Anthony Wile and Wayne Wew, the Court ordered Wile to pay a civil penalty in the amount of $35,000, and Wew to disgorge approximately $8000 and pay a $10,000 civil penalty. In its Complaint in the civil action, the Commission alleged that, in early 2002, Brian and Scott Lines assisted two LOM customers, defendants William Todd Peever and Phillip James Curtis, to secretly acquire a publicly-traded OTCBB shell company named Inside Holdings, Inc. (“IHI”). Peever and Curtis then arranged for a reverse merger of IHI with SHEP Ltd., a private company that purportedly owned certain intellectual property. Peever and Curtis paid three touters to publish a series of highly positive reports recommending investments in the newly-merged entity, SHEP Technologies, Inc. The Commission’s complaint alleged, in pertinent part, that during the first half of 2003, Peever, Curtis, and the Lines brothers sold over three million SHEP shares into this artificially-stimulated demand. As part of the alleged scheme, the Lines brothers, Peever, and Curtis failed to file required reports regarding their beneficial ownership of IHI and SHEP stock, and Brian Lines caused several false reports to be filed with the Commission in order to conceal that Peever and Curtis, among others, owned substantial positions in, and had been selling, SHEP stock. As further alleged in the Commission’s Complaint, in late 2002, Anthony Wile and another individual formed Renaissance Mining Corporation (“Renaissance”) and thereafter engaged in substantial promotional activities that created the misleading impression that Renaissance had acquired three Central American gold mines and was the “Leading Gold Producer in Latin America.” In fact, Renaissance had only executed a non-binding Letter of Intent to acquire those mines and lacked the funding necessary to consummate the acquisition. The Complaint further alleges that Wile acted in concert with the Lines brothers, who acquired a publicly-traded shell, Sedona Software Solutions, Inc., using LOM accounts in the names of nominees to disguise their ownership of the Sedona shell, as part of a plan to merge Sedona with Renaissance. The Complaint alleges that, in early 2003, Wile and his associate primed the market for Renaissance/Sedona by disseminating materially false and misleading information that misrepresented the ownership of the gold mines and created the impression that the Renaissance/Sedona merger had been completed. Wile and his associate also arranged for the Renaissance/Sedona offering to be touted to prospective investors by Robert Chapman, the publisher of an on-line investment newsletter, and three other newsletter writers, all of whom purchased Renaissance shares for nominal sums. Through this deceptive promotional campaign, Wile and his associate informed the market that there would be an opportunity to invest in Renaissance by acquiring Sedona stock at approximately $10 per share beginning on January 21, 2003. According to the Complaint’s allegations, on that date, Wile orchestrated a pre-arranged manipulative trade between his uncle, defendant Wayne E. Wile (who subsequently changed his name to Wayne Wew), and Brian Lines to artificially drive up the price of Sedona stock from $.03 per share to over $9.00 per share and stimulate trading in the stock. The Complaint alleged that Scott Lines solicited investors, including at least one LOM customer in the United States, to purchase Renaissance stock in anticipation of the merger between Renaissance and Sedona, without disclosing that he and Brian Lines owned the Sedona shell corporation. The Complaint further alleged that, after Renaissance and Sedona had announced their pending merger, the Lines brothers sold 143,000 shares of Sedona stock in an unregistered distribution to numerous public investors at between $8.95 and $9.45 per share, reaping over $1 million in illegal profits. On January 29, 2003, the Commission suspended trading in Sedona’s stock. Final judgments were entered by the Court against each defendant and provide the following relief, respectively: (i) Brian Lines is permanently enjoined from violating the antifraud, securities offering registration, and securities ownership disclosure provisions of the federal securities laws, Sections 5 and 17(a) of the Securities Act of 1933 (“Securities Act”) and Sections 13(d) and 16(a) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rules 13d-1, 13d-2, and 16a-3 thereunder; (2) ordered to pay disgorgement, jointly and severally with Scott Lines and the LOM Entities, in the amount of $1,277,403, plus prejudgment interest thereon in the amount of $654,918; (3) ordered to pay a civil penalty in the amount of $100,000; and (4) ordered to comply with an undertaking to not trade for a period of three years in penny stocks that are quoted or displayed on the OTC Bulletin Board Montage, Pink Sheets, or the ArcaEdge Electronic Limit Order File; (ii) Scott Lines is permanently enjoined from violating the antifraud, broker-dealer registration, securities offering registration, and securities ownership disclosure provisions, Sections 5 and 17(a)(2) and (3) of the Securities Act and Sections 13(d), 15(a), and 16(a) of the Exchange Act and Rules 13d-1, 13d-2, and 16a-3 thereunder; (2) ordered to pay disgorgement, jointly and severally with Brian Lines and the LOM Entities, in the amount of $1,277,403, plus prejudgment interest thereon in the amount of $654,918; (3) ordered to pay a civil penalty in the amount of $50,000; and (4) ordered to comply with an undertaking not to trade for a period of two years in penny stocks that are quoted or displayed on the OTC Bulletin Board Montage, Pink Sheets, or the ArcaEdge Electronic Limit Order File; (iii) Lines Overseas Management Ltd. is permanently enjoined from violating the antifraud, securities offering registration, and securities ownership disclosure provisions, Sections 5 and 17(a)(2) and (3) of the Securities Act, and Section 13(d) of the Exchange Act and Rules 13d-1, 13d-2, and 16a-3 thereunder; (2) ordered to pay disgorgement, jointly and severally with Brian Lines, Scott Lines and the other settling LOM Entities, in the amount of $1,277,403, plus prejudgment interest thereon in the amount of $654,918; (3) ordered to pay a civil penalty in the amount of $450,000, jointly and severally with the other settling LOM Entities; and (4) ordered to comply with an undertaking to: (a) not trade for a period of two years in penny stocks that are quoted or displayed on the OTC Bulletin Board Montage, Pink Sheets, or the ArcaEdge Electronic Limit Order File; (b) not accept or maintain any account for or on behalf of any United States customer for a period of two years; and (c) hire an independent consultant for two years to monitor compliance with these undertakings; (iv) LOM Capital Ltd. and LOM Securities (Bermuda) Ltd. are permanently enjoined from violating the antifraud and securities offering registration provisions, Sections 5 and 17(a)(2) and (3) of the Securities Act and, in addition, LOM Securities (Bermuda) is permanently enjoined from violating the broker-dealer registration provision, Section 15(a) of the Exchange Act; (2) ordered to pay disgorgement, jointly and severally with Brian Lines, Scott Lines and the other settling LOM Entities, in the amount of $1,277,403, plus prejudgment interest thereon in the amount of $654,918; (3) ordered to pay a civil penalty in the amount of $450,000, jointly and severally with the other settling LOM Entities; and (4) ordered to comply with an undertaking to: (a) not trade for a period of two years in penny stocks that are quoted or displayed on the OTC Bulletin Board Montage, Pink Sheets, or the ArcaEdge Electronic Limit Order File; (b) not accept or maintain any account for or on behalf of any United States customer for a period of two years; and (c) hire an independent consultant for two years to monitor compliance with these undertakings; (v) LOM Securities (Bahamas) Ltd. and LOM Securities (Cayman) Ltd. are permanently enjoined from violating the securities offering registration provision, Section 5 of the Securities Act; (2) ordered to pay disgorgement, jointly and severally with Brian Lines, Scott Lines and the other settling LOM Entities, in the amount of $1,277,403, plus prejudgment interest thereon in the amount of $654,918; (3) ordered to pay a civil penalty in the amount of $450,000, jointly and severally among the settling LOM Entities; and (4) ordered to comply with an undertaking to: (a) not trade for a period of two years in penny stocks that are quoted or displayed on the OTC Bulletin Board Montage, Pink Sheets, or the ArcaEdge Electronic Limit Order File; (b) not accept or maintain any account for or on behalf of any United States customer for a period of two years; and (c) hire an independent consultant for two years to monitor compliance with these undertakings; (vi) Anthony Wile is permanently enjoined from violating the antifraud and securities offering registration provisions, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and Sections 5 and 17(a) of the Securities Act; (2) ordered to pay a civil penalty in the amount of $35,000; (3) barred from serving as an officer or director of a public company for a period of five years; and (4) barred from participating in an offering of penny stock for a period of three years; (vii) Wayne Wew (formerly Wayne E. Wile) is permanently enjoined from violating the antifraud provisions, Sections 17(a)(2) and (3) of the Securities Act; (2) ordered to pay disgorgement in the amount of $5,422, plus prejudgment interest thereon in the amount of $2,608; and (3) ordered to pay a civil penalty in the amount of $10,000. As part of a global settlement with the LOM Entities, Brian Lines, and Scott Lines, the Commission agreed to dismiss with prejudice the pending civil enforcement action against LOM Holdings Ltd., which is the parent holding company for the LOM Entities. The Court previously had entered permanent injunctive relief against defendants Peever, Curtis, and Chapman. The Commission’s claims for monetary relief against those defendants remain pending before the Court. [SEC v. v. Brian N. Lines, Scott G.S. Lines, LOM (Holdings) Ltd., Lines Overseas Management Ltd., LOM Capital Ltd., LOM Securities (Bermuda) Ltd., LOM Securities (Cayman) Ltd., LOM Securities (Bahamas) Ltd., Anthony W. Wile, Wayne E. Wile, Robert J. Chapman, William Todd Peever, Phillip James Curtis, and Ryan G. Leeds, 1:07-CV-11387 (DLC) (S.D.N.Y)] (LR-21696) Securities and Exchange Commission v. Thomas J. Petters, Gregory M. Bell and Lancelot Investment Management, LLC, Defendants, and Inna Goldman, Inna Goldman Revocable Trust, Asia Trust Ltd., Blue Sky Trust, and Gregory Bell Revocable Trust, Relief DefendantsThe Securities and Exchange Commission announced that on October 5, 2010, the Hon. Ann D. Montgomery entered by consent a Partial Final Judgment as to hedge fund manager Gregory Bell and his firm Lancelot Investment Management, LLC, permanently enjoining them from violating Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder and Sections 206(1), (2) and (4) of the Investment Advisers Act of 1940 and Rule 206-4(8) thereunder. Previously, in July 2009, the SEC filed an emergency action against Bell and his firm Lancelot Investment Management, LLC that charged them with misleading investors into investing more than $2 billion in hedge fund assets with Petters while pocketing millions of dollars in fraudulent fees at the expense of investors in the funds. The SEC obtained an asset freeze and other emergency relief against Bell and his firm and repatriated $15 million of investors’ money from Switzerland that Bell had misappropriated and placed in a Cook Islands Trust. In addition, as a result of a separate action by the United States Attorney, District of Minnesota, on September 30, 2010 Gregory Bell was sentenced to 72 months in prison, with credit for the 14 months he had served since his arrest in July 2009. U.S.A. v. Bell, 09-cr-00269. The SEC's investigation is continuing. [SEC v. Thomas J. Petters, Gregory M. Bell and Lancelot Investment Management LLC, Defendants, and Inna Goldman, Inna Goldman Revocable Trust, Asia Trust Ltd., Blue Sky Trust, and Gregory Bell Revocable Trust, Relief Defendants, Civil Action No. 09 SC 1750 ADM/JSM (D. Minn.)] (LR-21697) SELF-REGULATORY ORGANIZATIONSApproval of Proposed Rule ChangeThe Commission granted approval to a proposed rule change (SR-NASDAQ-2010-107) submitted pursuant to Rule 19b-4 under the Securities Exchange Act of 1934 by The NASDAQ Stock Market to modify the eligibility criteria for the second compliance period for a bid price deficiency on the Nasdaq Capital Market. Publication is expected in the Federal Register during the week of October 18. (Rel. 34-63110) Immediate Effectiveness of Proposed Rule ChangesA proposed rule change filed by NYSE Arca amending NYSE Arca Equities Rule 7.37, Order Execution, to clarify Users’ ability to instruct NYSE Arca to bypass non-Regulation NMS protected market centers when routing away (SR-NYSEArca-2010-89) 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 October 18. (Rel. 34-63116) A proposed rule change filed by the International Securities Exchange relating to enhancements to the Exchange's electronic trading platform (SR-ISE-2010-101) 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 October 18. (Rel. 34-63117) SECURITIES ACT REGISTRATIONSRECENT 8K FILINGS
http://www.sec.gov/news/digest/2010/dig101810.htm
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