SEC News Digest

COMMISSION ANNOUNCEMENTS

SEC Proposes First In Series of Rule Amendments to Remove References to Credit Ratings

The Securities and Exchange Commission today voted unanimously to propose amendments to its rules that would remove credit ratings as one of the conditions for companies seeking to use short-form registration when registering securities for public sale.

Section 939A of the Dodd-Frank Wall Street Reform and Consumer Protection Act requires federal agencies to review how existing regulations rely on credit ratings and remove such references from their rules as appropriate.

This marks the first in a series of upcoming SEC proposals in accordance with Dodd-Frank to remove references to credit ratings contained within existing Commission rules and replace them with alternative criteria.

"Over-reliance on credit ratings has been one of the factors cited as contributing to the financial crisis," said SEC Chairman Mary L. Schapiro. "I look forward to hearing from companies that are currently eligible for short-form registration as to whether there are alternative criteria that would preserve their eligibility."

The SEC's proposal focuses on the use of credit ratings as a condition of so-called "short-form" eligibility. Companies that are "short-form eligible" also are allowed to register securities "on the shelf." Shelf registration provides companies considerable flexibility in deciding when to access the public securities markets.

The SEC's proposed rule amendments would remove the NRSRO investment grade ratings condition included in SEC forms S-3 and F-3 for offerings of non-convertible securities, such as debt securities. And instead of ratings, the new short-form test for shelf-offering eligibility of companies would be tied to the amount of debt and other non-convertible securities they have sold in the past three years.

Public comments on the SEC's proposal should be submitted by March 28, 2011.

(Press Rel. 2011-41; Rel. 33-9186)

ENFORCEMENT PROCEEDINGS

Commission Revokes Registration of Securities of Strategic Partners, Inc. for Failure to Make Required Periodic Filings

On Feb. 9, 2011, the Commission revoked the registration of each class of registered securities of Strategic Partners, Inc. (Strategic Partners) for failure to make required periodic filings with the Commission.

Without admitting or denying the findings in the Order, except as to jurisdiction, which it admitted, Strategic Partners consented to the entry of an Order Making Findings and Revoking Registration of Securities Pursuant to Section 12(j) of the Securities Exchange Act of 1934 as to Strategic Partners, Inc. finding that it had failed to comply with Section 13(a) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 13a-1 and 13a-13 thereunder and revoking the registration of each class of Strategic Partners' securities pursuant to Section 12(j) of the Exchange Act. This Order settled the proceedings brought against Strategic Partners in In the Matter of Speedlane.com, Inc., et al., Administrative Proceeding File No. 3-14100.

Brokers and dealers should be alert to the fact that Exchange Act Section 12(j) provides, in pertinent part, as follows:

No member of a national securities exchange, broker, or dealer shall make use of the mails or any means or instrumentality of interstate commerce to effect any transaction in, or to induce the purchase or sale of, any security the registration of which has been and is suspended or revoked . . . .

For further information see Order Instituting Administrative Proceedings and Notice of Hearing Pursuant to Section 12(j) of the Securities Exchange Act of 1934, In the Matter of Speedlane.com, Inc., et al., Administrative Proceeding File No. 3-14100, Exchange Act Release No. 63200, Oct. 27, 2010. (Rel. 34-63870; File No. 3-14100)

Commission Revokes Registrations of Securities of ATC Healthcare, Inc. for Failure to Make Required Periodic Filings

On Feb. 9, 2011, the Commission instituted a settled proceeding pursuant to Section 12(j) of the Securities Exchange Act of 1934 (Exchange Act) revoking the registration of each class of registered securities of ATC Healthcare, Inc. (ATC Healthcare) (stock symbol AHNA) for failure to make required periodic filings with the Commission.

Without admitting or denying the findings of the order, except as to jurisdiction, which it admitted, ATC Healthcare consented to the entry of an Order Instituting Proceedings, Making Findings, and Revoking Registration of Securities Pursuant to Section 12(j) of the Securities Exchange Act of 1934 finding that it had failed to comply with Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder and revoking the registration of each class of ATC Healthcare's securities pursuant to Section 12(j) of the Exchange Act.

Brokers and dealers should be alert to the fact that Exchange Act Section 12(j) provides, in pertinent part, as follows:

No member of a national securities exchange, broker, or dealer shall make use of the mails or any means or instrumentality of interstate commerce to effect any transaction in, or to induce the purchase or sale of, any security the registration of which has been and is suspended or revoked . . . . (Rel. 34-63871; File No. 3-14245)

Commission Revokes Registrations of Securities of Hemiwedge Industries, Inc. For Failure to Make Required Periodic Filings

On Feb. 9, 2011, the Commission instituted a settled proceeding pursuant to Section 12(j) of the Securities Exchange Act of 1934 (Exchange Act) revoking the registration of each class of registered securities of Hemiwedge Industries, Inc. (Hemiwedge Industries) (stock symbol HWEG) for failure to make required periodic filings with the Commission.

Without admitting or denying the findings of the order, except as to jurisdiction, which it admitted, Hemiwedge Industries consented to the entry of an Order Instituting Proceedings, Making Findings, and Revoking Registration of Securities Pursuant to Section 12(j) of the Securities Exchange Act of 1934 finding that it had failed to comply with Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder and revoking the registration of each class of Hemiwedge Industries' securities pursuant to Section 12(j) of the Exchange Act.

Brokers and dealers should be alert to the fact that Exchange Act Section 12(j) provides, in pertinent part, as follows:

No member of a national securities exchange, broker, or dealer shall make use of the mails or any means or instrumentality of interstate commerce to effect any transaction in, or to induce the purchase or sale of, any security the registration of which has been and is suspended or revoked . . . . (Rel. 34-63872; File No. 3-14246)

In the Matter of Rodney B. Johnson

On Feb. 9, 2011, 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 Rodney B. Johnson. The Order finds that on January 31, a final judgment was entered by consent against Johnson permanently enjoining him from violations of 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 Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder, in the civil action entitled SEC v. Louis E. Rivelli et al., Civil Action No. 1:05-cv-01039-RPM (D.Colo.) Johnson was also ordered to pay disgorgement and prejudgment interest totaling $60,029 and was prohibited from serving as an officer or director of a public company for five years. Based on his sworn statement of financial condition and other documents and information provided to the Commission, the court did not order Johnson to pay a civil penalty.

The Order further finds that the Commission's complaint alleged, among other things, that Johnson knowingly or recklessly engaged in a fraudulent revenue recognition scheme that resulted in false and misleading statements in Fischer's filings on Forms 10-K and 10-Q and other filings and public statements from Fischer's third quarter of 2000 through its second quarter of 2002. The complaint alleged that Johnson was involved in Fischer's improper recognition of revenue upon shipment of products to storage facilities rather than upon shipment to customers or customer designated locations. The complaint also alleged that Johnson knew or was reckless in not knowing that Fischer improperly recognized revenue from orders subject to material contingencies and other terms rendering revenue recognition inappropriate under Generally Accepted Accounting Principles. In addition, the complaint alleged that Johnson failed to disclose information and made false and misleading statements to Fischer's auditors relating to Fischer's improper revenue recognition practices. The complaint further alleged that Johnson circumvented or failed to implement a system of accounting controls at Fischer, falsified or directly or indirectly caused to be falsified certain books, records or accounts of Fischer, and aided and abetted Fischer's violations of certain reporting, internal controls, and books and records provisions of the federal securities laws.

Based on the above, the Order suspends Rodney B. Johnson from appearing or practicing before the Commission as an accountant, with a right to apply for reinstatement after five years. Johnson 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. (Rel. 34-63879; AAE Rel. 3241; File No. 3-14247)

Court Orders $3.4 Million Judgment Against Robert Olins, Former CEO of SpatiaLight, and Argyle Capital Management

On Jan. 21, 2011, a Northern District of California court ordered Defendants Robert Olins (Olins), former CEO of SpatiaLight, Inc. (SpatiaLight), and his wholly-owned company Argyle Capital Management Corporation (Argyle) to pay nearly $3.4 million and permanently enjoined the defendants from violating Sections 5(a) and (c) of the Securities Act of 1933 (Securities Act). The judgment includes more than $2.4 million in disgorgement of proceeds from illegal stock sales, nearly $900,000 in prejudgment interest and a $5,000 civil penalty. This final remedies judgment follows the Court's November 2009 order granting in part the Securities and Exchange Commission's (Commission) motion for partial summary judgment against the defendants, finding that the defendants were liable for the unlawful sale of SpatiaLight stock and Olins' subsequent failure to report those sales. In March 2010, the Court denied the defendants' motion for reconsideration of that ruling.

The Commission's complaint alleged that, in 2005, Olins and Argyle illegally sold over 400,000 shares of SpatiaLight stock, and that Olins failed to disclose those sales and also made misrepresentations about the stock in a SpatiaLight Form 8-K. In finding the defendants liable for violations of Section 5, the Court found that Olins was an affiliate of SpatiaLight, and that the defendants were not eligible for an exemption from registering their sales under Exchange Act Section 4(1) because they were underwriters. Moreover, the Court found that the defendants did not qualify for the Rule 144 safe harbor because they did not file notice of their sales, or hold the stock for the required length of time. The Court specifically rejected defendants' argument that they should not be deemed underwriters because they met some, but not all, of the Rule 144 requirements. The Court further found that the amount of disgorgement should include all proceeds obtained from the unlawful sale of the securities, and refused the defendants' request to offset the disgorgement amount in recognition of legitimate services provided by Olins to SpatiaLight. The Court also ordered the full amount of prejudgment interest sought by the Commission because the defendants had use of their ill-gotten gains since the time of the illegal sales.

In conduct unrelated to Olins' illegal stock sales, the Commission also alleged in its complaint that Olins forged auditor consents on two sets of SpatiaLight registration statements in July 2005, and that he engaged in insider trading in August 2005 and February 2006. In November 2009 and June 2010, Olins, without admitting or denying the Commission's allegations, consented to judgments enjoining him from violating the antifraud provisions of Section 17(a) of the Securities Act, Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Exchange Act Rule 10b-5. In addition, Olins was enjoined from violating the books and records, internal controls and beneficial ownership reporting provisions of the securities laws, including Sections 13(a), 13(b), 13(b)(5), 13(d), 14(a) and 16(a) of the Exchange Act and Exchange Act Rules 12b-20, 13a-1, 13a-11, 13a-14, 13d-2(a), 14a-9 and 16a-3. Finally, Olins also consented to a permanent officer and director bar and $180,000 civil penalty.

The Commission's complaint also sought injunctive relief against SpatiaLight for violations of Sections 5(a), 5(c), and 17(a) of the Securities Act, Sections 10(b), 17(a), 13(a), 13(b) and 14(a) of the Exchange Act, and Rules 10b-5, 12b-20, 13a-1, 13a-11 and 14a-9 thereunder. The Court entered a default judgment against the company, now in bankruptcy, in July 2008. The litigation against all parties is now complete. [SEC v. Robert Olins, et. al.; Civil Action No. 07-6423 (N.D. Cal.)] (LR-21845)

SEC Obtains Order Setting Disgorgement, Prejudgment Interest, and Civil Penalties in Minnesota Hedge Fund Fraud Case

On Feb. 7, 2011, the Securities and Exchange Commission obtained an Order in the U.S. District Court of Minnesota, setting disgorgement, prejudgment interest, and civil penalties, against John W. Lawton and Crossroad Capital Management, LLC, the owner and investment adviser to hedge fund Paramount Partners, LP. Lawton was ordered to pay disgorgement of $1,758,788 plus prejudgment interest and a civil penalty in the amount of $100,000. Crossroad was ordered to pay disgorgement of $2,075,670 plus prejudgment interest and a civil penalty in the amount of $500,000. As of Feb. 8, 2011, approximately $1,441,249, previously frozen by the Court, had been transferred to the Registry of the Court.

The Commission originally filed its action against the Defendants on Feb. 18, 2009. The Commission's complaint alleged that Paramount was a hedge fund to which approximately 50 to 60 investors provided $9 million. The complaint alleged that Lawton and Crossroad fraudulently misrepresented Paramount's assets and returns. The complaint further alleged that in January 2009, Defendants sent account statements to investors reflecting investments totaling about $17 million as of Dec. 31, 2008. In fact, Paramount allegedly had about $5.3 million of assets at that time and less than $2 million in January 2009.

On Feb. 25, 2009, the Defendants voluntarily consented to the entry of a Preliminary Injunctive Order and Asset Freeze. On July 13, 2009, the Honorable Judge Ann Montgomery issued an Order of Permanent Injunction and Other Relief against the Defendants, by consent, enjoining Paramount, Crossroad, and Lawton from violating the antifraud provisions of the Securities Act of 1933 [Section 17(a)] and the Securities Exchange Act of 1934 [Section 10(b) and Rule 10b-5 thereunder], and against Crossroad and Lawton with respect to violations of the antifraud provisions of the Investment Advisers Act of 1940 [Sections 206(1), 206(2), and 206(4) and Rule 206(4)-8 thereunder] and Lawton for aiding and abetting Crossroad's violations. [SEC v. John W. Lawton, Paramount Partners LP, and Crossroad Capital Management, LLC, Civil Case No. 09-368 ADM/AJB, USDC, D. Minn.] (LR-21846)

Court Enters Default Judgments Permanent Injunction and Other Relief Against Defendants Carol McKeown, Daniel F. Ryan and Their Companies Downshire Capital Inc. and Meadow Vista Financial Corp.

The Securities and Exchange Commission announced that on Jan. 25, 2011, the United States District Court for the Southern District of Florida granted the Commission's Motion for Default Judgment and entered Judgments of Permanent Injunction and Other Relief against Defendants Carol McKeown and Daniel F. Ryan, a Canadian couple and two companies they control Downshire Capital Inc. and Meadow Vista Financial Corp.

The Judgments permanently enjoin each of the Defendants from future violations of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. In addition, McKeown, Ryan and Meadow Vista are permanently enjoined from future violations of Section 17(b) of the Securities Act. The Judgments jointly and severally order McKeown, Ryan, Downshire and Meadow Vista to pay disgorgement of $3,719,543, representing ill-gotten gains and prejudgment interest of $74,762.81. In addition, each of the Defendants is ordered to pay a civil penalty in an amount to be determined at a later date upon the Commission's motion. The Judgments also bar McKeown and Ryan from participating in an offering of a penny stock.

On June 23, 2010, the Commission filed its emergency complaint and obtained an emergency asset freeze against the Defendants. The complaint alleged that since at least April 2009, McKeown and Ryan touted U.S. microcap companies on www.pennystockchaser.com, Facebook and Twitter. McKeown and Ryan received millions of shares of touted companies through their two corporations, Downshire and Meadow Vista, as compensation for their touting. McKeown and Ryan sold the shares on the open market while PennyStockChaser simultaneously predicted massive price increases for the issuers, a practice known as "scalping." In addition, McKeown, Ryan, and Meadow Vista failed to disclose the full amount of the compensation they received for touting stocks on PennyStockChaser. [SEC v. Carol McKeown, et al., Civil Action No. 10-CV-80748- COHN (S.D. Fla.)] (LR-21847)

SELF-REGULATORY ORGANIZATIONS

Immediate Effectiveness of Proposed Rule Changes

A proposed rule change filed by Chicago Board Options Exchange related to stock-option orders (SR-CBOE-2011-009) 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 February 7. (Rel. 34-63842)

A proposed rule change filed by C2 Options Exchange (SR-C2-2011-004) to amend the C2 Fees Schedule 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 February 7. (Rel. 34-63851)

A proposed rule change filed by New York Stock Exchange amending the forms of broker letters set forth in Exchange Rule 451 and Sections 905.02 and 905.03 of the Exchange's Listed Company Manual (SR-NYSE-2011-02) 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 February 7. (Rel. 34-63855)

A proposed rule change filed by BATS Exchange (SR-BATS-2011-004) related to fees for use of BATS Exchange, Inc. 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 February 7. (Rel. 34-63857)

A proposed rule change filed by the EDGA Exchange (SR-EDGA-2011-04) relating to amendments to the EDGA Exchange, Inc. Fee Schedule 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 February 7. (Rel. 34-63858)

Approval of Proposed Rule Changes

The Commission approved a proposed rule change (SR-ISE-2010-115), submitted by the International Securities Exchange pursuant to Rule 19b-4 under the Securities Exchange Act of 1934, relating to registration, qualification, and continuing education requirements for members and associated persons. Publication is expected in the Federal Register during the week of February 7. (Rel. 34-63843)

The Commission granted approval of a proposed rule change (SR-NYSEArca-2010-117) submitted by NYSE Arca under Rule 19b-4 of the Securities Exchange Act of 1934 relating to the listing and trading of the Grail Western Asset Ultra Short Duration ETF under NYSE Arca Equities Rule 8.600. Publication is expected in the Federal Register during the week of February 7. (Rel. 34-63856)

The Commission granted approval of a proposed rule change (SR-Phlx-2010-176) submitted by NASDAQ OMX PHLX pursuant to Rule 19b-4 under the Securities Exchange Act of 1934, relating to listing and trading of Alpha Index options. Publication is expected in the Federal Register during the week of February 7. (Rel. 34-63860)

Proposed Rule Changes

A proposed rule change, (SR-CBOE-2011-010) has been filed by the Chicago Board Options Exchange relating to bylaw and related rule changes under Section 19(b)(2) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of February 7. (Rel. 34-63844)

A proposed rule change, (SR-C2-2011-003) has been filed by the C2 Options Exchange relating to bylaw and related rule changes under Section 19(b)(2) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of February 7. (Rel. 34-63845)

NASDAQ OMX BX filed a proposed rule change (SR-BX-2011-007) related to permanent approval of the BX and NES inbound routing relationship pursuant to Rule 19b-4 under the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of February 7. (Rel. 34-63859)

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