Tag: SEC

SEC Warns Investors and Financial Firms of Government Impersonators

sec-sealThe Securities and Exchange Commission issued a warning  about con-artists who may use the names of actual SEC employees to mislead potential victims. The SEC is already beaten down by the Madoff scandal. Now it has to deal with scam artists further dragging mud across the reputation of the SEC.

Investors should be aware that the SEC never makes or endorses investment offers or participates in money transfers. Nor does the SEC send e-mails asking for detailed personal information, or financial information such as PIN numbers.

Take steps to protect your self:

If you have reason to suspect that a caller claiming to be an examiner or other member of the staff is not a member of the SEC’s staff, consider taking the following steps. You can ask for the caller’s name, office, and telephone number, and tell the caller that you will return his or her call. The telephone numbers of all SEC offices are available on the SEC’s web site at: http://www.sec.gov/contact/addresses.htm. Using the telephone number on the SEC’s website, call the main number of the particular office that the caller identified, and ask to speak to the SEC staff person.

See also:

SEC Requirements for Online Annual Reports and Proxy Statements

The SEC is trying to move investors further into the internet era with its new regulations on the ability to furnish proxy materials to shareholders by posting them on an Internet Web site and providing shareholders with notice of the electronic availability of the proxy materials. [SEC Release 34-56135] This is amendment to the original electronic delivery regulations in SEC Release 34-55146.

I am confused with a statement on page 11:

The materials must be presented on the Web site in a format, or formats, convenient for both reading online and printing on paper.[FN35]
footnote 35:
We believe that requiring readable and printable formats is important so that shareholders have meaningful access to the proxy materials. When determining the readability and printability of formats, issuers should consider the size of the files because many shareholders do not have broadband connections. Although some types of files may be suitable for persons with high-speed Internet access, the readability and printability of a document may be affected significantly by the time that it takes to download the document.

I expect that most people expected they post a .pdf version of their annual report and proxy statement on their website. This seems to indicate that you can’t if it would take a long time to download.  Personally, I though .pdf files would be the way to go. This leaves some doubt in my mind. Pdf files tend to be big which would result in a long time to download.

You can read more in this summary by John F. Olson, Partner, Gibson, Dunn & Crutcher LLP and Visiting Professor, Georgetown Law Center on The Harvard Law School Corporate Governance Blog: E-Proxy Rules Take Effect for All Public Companies.

What Is Insider Trading?

sec-sealThe SEC.gov website has a blurb on Insider Trading.  They start off with legal insider trading, when officers, directors and employees buy and sell stock in their own companies. Corporate insiders are required to report their trades.

Illegal insider trading “refers generally to buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, while in possession of material, nonpublic information about the security. Insider trading violations may also include “tipping” such information, securities trading by the person “tipped,” and securities trading by those who misappropriate such information.”

The SEC adopted new Rules 10b5-1 and 10b5-2 to resolve two insider trading issues where the courts have disagreed.

Under Rule 10b5-1, a person is trading on the basis of material nonpublic information if a trader is “aware” of the material nonpublic information when making the purchase or sale. The rule also sets forth several affirmative defenses or exceptions to liability. The rule permits persons to trade in certain specified circumstances where it is clear that the information they are aware of is not a factor in the decision to trade, such as pursuant to a pre-existing plan, contract, or instruction that was made in good faith.

Rule 10b5-2 focuses on the misappropriation theory of insider trading and how it applies to certain non-business relationships. This rule provides that a person receiving confidential information under circumstances specified in the rule would owe a duty of trust or confidence and thus could be liable under the misappropriation theory.

SEC Inspector General Testifies In Congress

SEC Inspector General H. David Kotz In the first Congressional hearing since the Madoff scandal broke in December, Mr. Kotz said his agency’s handling of the Madoff case may be a symptom of more widespread problems with how the agency handles its examinations and investigations.

Kotz testified on the subject of “Assessing the Madoff Ponzi Scheme.”

Frankly it sounds like the SEC will spend as much time and energy investigating themselves on the Madoff matter as they will actually investigating the Madoff matter itself.

See also:

No Laughing Matter; National Lampoon Subject to SEC Complaint

See a copy of the complaint at JD supra: SEC v. National Lampoon.

The Commission’s complaint alleges that, from at least March 2008 through June 2008, Laikin, Barsky, Rodriguez and Dougherty engaged in a fraudulent scheme to manipulate the market for the common stock of National Lampoon. Specifically, Laikin, along with Barsky, paid kickbacks in exchange for generating or causing purchases of National Lampoon stock to Rodriguez, a corrupt stock promoter, and the CW, whom Laikin, Barsky and Rodriguez believed had connections to corrupt registered representatives. As part of this scheme, Dougherty generated purchases of National Lampoon stock in exchange for a portion of the kickbacks. Dougherty made his purchases over the course of a number of days and used various accounts to give the false impression of a steady demand for the stock.

The complaint alleges that Laikin and Barsky paid at least $68,000 that went to Rodriguez, Dougherty, and the CW to cause the purchase of at least 87,500 shares of National Lampoon stock. Through these efforts, Laikin and Barsky sought to artificially push National Lampoon’s stock price from under $2 per share to at least $5 per share, in part, to keep the company’s stock price above the minimum listing requirements of the AMEX, and to increase National Lampoon’s ability to enter into possible “strategic partnerships” and acquisitions. In addition to paying others to purchase the stock, Laikin shared confidential financial information regarding National Lampoon, non-public news releases, and confidential shareholder lists, and coordinated the release of news with the illegal purchases in the stock. Barsky helped direct the purchases and facilitated the kickback payments. National Lampoon and Laikin also made materially misleading statements in a tender offer.

The complaint alleges violations of Section 17(a) of the Securities Act of 1933, Sections 9(a)(2), 10(b) and 13(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 13e-4 thereunder. The complaint seeks permanent injunctions against all defendants, disgorgement of ill-gotten gains, together with prejudgment interest, and civil penalties, from the individual defendants, and an officer and director bar against Laikin.

How To Keep The Corporate Website In Compliance With Securities Laws

Timothy Hearn of Dorsey and Whitney, penned SEC Provides Guidance On Use Of Company Web Sites in Cyberspace Lawyer Vol. 13, No. 9, Pgs. 8-12. Bowne’s Digest of Compliance professionals abstracted some of the highlights: Tips On How To Keep The Corporate Website In Compliance With Securities Laws.

The SEC has issued an interpretive release (SEC Rel. No. 34-58288) on how to manage a corporate website in compliance with the federal securities laws.

Researching the Federal Securities Law

sec-sealThe SEC has put together a collection of Researching the Federal Securities Laws Through the SEC Website.

This guide provides an overview of how to research the securities law through the SEC website and is provided as a service to investors and members of the public. It is neither a legal interpretation nor a statement of SEC policy. If you have questions concerning the meaning or application of a particular law or rule you should consult with an attorney who specializes in securities law. This guide does not address primary and secondary sources available in print or through other websites, other than those to which the SEC website links. The guide is organized by providing suggestions for the research of:

  • Statutes (the Securities Laws)
  • SEC Rules and Regulations
  • SEC Concept Releases
  • SEC Interpretive Releases
  • SEC Staff Interpretations

In general, you should conduct your research on the federal securities laws in the order prescribed above. This is because while the federal statutes and the SEC rules and regulations have the force of law, other SEC-issued documents vary in the degree to which they carry the force of law.

Open Letter to CEOs of SEC-Registered Firms

sec-sealThe SEC’s Office of Compliance Inspections and Examinations has published an letter to CEOs of SEC Registered Firms about the importance of compliance programs during this time of “financial and market turmoil.”

December 2, 2008

Dear CEO of SEC-Registered Firm:

During this time of financial and market turmoil, the Office of Compliance Inspections and Examinations of the Securities and Exchange Commission reminds leaders of SEC-registered firms, including broker-dealers, investment advisers, investment companies and transfer agents, of the critical role played by your firm’s compliance programs in helping to meet your obligations under the securities laws. Your firm’s compliance function is critical to assure that your operations comply with the law and rules for industry participation and to ensure that the interests of your customers, clients and shareholders are protected. Moreover, compliance is a vital control function that helps to protect the firm from conduct that could negatively impact the firm’s business and its reputation.

While many firms are considering reductions and cost-cutting measures, we remind you of your firm’s legal obligation to maintain an adequate compliance program reasonably designed to achieve compliance with the law. As SEC Chairman Cox noted recently, “[E]xperience has taught us again and again that giving short shrift to regulatory compliance subjects a company’s investors, employees, management, directors, and every other stakeholder to unacceptable risks….[C]ompliance programs have made huge strides in recent years in becoming more formalized and more robust…. Now more than ever, companies need to take a long-term view on compliance and realize that their fiduciary responsibility requires a constant commitment to investors. That means sustaining their support for compliance during this market turmoil, and beyond it as well.” http://www.sec.gov/news/speech/2008/spch111308cc.htm

Firms must be vigilant and proactive in preventing, detecting and correcting problems that could occur. Firms should pay attention to ensuring that their interactions with investors meet high standards, that sales and trading practices are appropriate, that financial, valuation and risk controls are followed, and that all disclosure obligations are met — as well as meeting all other obligations in conformity with the securities laws.

By fulfilling their obligations, regulated firms in the financial services industry can help to restore and bolster public confidence in the fairness and integrity of our markets and market participants. Providing adequate resources to compliance programs and functions and ensuring that CCOs and compliance personnel are integrated into the activities of the firm are essential to that process.

Thank you for your focus on this important matter.

Very truly yours,

Lori A. Richards
Director

http://www.sec.gov/about/offices/ocie/ceoletter.htm

Core Initial Request for Information from Investment Advisers

sec-sealThe SEC’s Office of Compliance Inspections and Examinations has published its Core Initial Request for Information for Investment Adviser Examinations.

The initial phase of an examination includes a review of the firm’s business and investment activities, its organizational affiliations and its corresponding compliance policies and procedures. The staff will request information and documents and speak with the firm’s employees to ensure an understanding of the firm’s business and investment activities and the operation of its compliance program. Using the information obtained, the staff will assess whether the firm’s compliance policies and procedures appear to effectively address the firm’s compliance risks. This work includes testing the firm’s compliance program in particular areas.

The following points provide an overview of the core information the staff requests:

  • Certain general information to provide an understanding of the firm’s business and investment activities, including organizational charts, demographic and other data regarding advisory clients, and a record of all trades placed for its clients (trade blotter).
  • Information about the compliance risks that the firm has identified (e.g., an inventory of compliance risks) and the written policies and procedures the firm has established and implemented to address each of those risks to provide an understanding of the firm’s compliance risks and corresponding controls.
  • Documents relating to the results of and output from the various transactional (quality control) and period (forensic) testing conducted to provide an understanding of how effectively a firm has implemented its compliance policies and procedures. This includes the results of any compliance reviews, quality control analyses, surveillance, forensic or transactional tests the firm has used to determine if activities have been performed as expected and to identify activities or transactions that have fallen short of or breached related policies and procedures.
  • Information regarding the results of any tests and follow-up actions taken by the firm to address shortfalls or breaches revealed by such tests to provide an understanding of steps taken by the firm to address the results of compliance reviews, quality control, forensic or transactional tests conducted. This information might include, for example, warnings to or disciplinary action of employees, changes in policies or procedures, redress to affected clients, or other measures.
  • Information to perform testing for compliance in various areas.

http://www.sec.gov/info/cco/requestlistcore1108.htm

Mark Cuban and Insider Trading

The Wall Street Journal reported that the SEC filed insider trading charges against Mark Cuban (owner of the Dallas Mavericks basketball team): SEC Charges Mark Cuban With Insider Trading. You can read the full text of the complaint against Mark Cuban.

According to the complaint, Cuban owned 600,000 shares in Mamma.com Inc.  (now called Copernic Inc.), whose shares are trded on NASDAQ. Cuban was told of an upcoming PIPE transaction. News of the transaction would likely have a substantial negative impact on the stock of the company. On the day prior to the announcement, Cuban sold all of his shares in the company and avoided losses in excess of $750,000.