SEC Charges Ritchie Capital Management, CEO and Other Employees for Illegal Late Trading Scheme

The Securities and Exchange Commission today announced a settled enforcement action against a hedge fund, its investment adviser, its founder and CEO, and two employees for their roles in an illegal late trading scheme.

The SEC charged hedge fund Ritchie Multi-Strategy Global Trading Ltd. and its Chicago-based adviser — Ritchie Capital Management LLC — as well as Ritchie Capital’s founder and CEO A.R. Thane Ritchie and employees Warren DeMaio and Michael Mauriello. They will pay a combined total of approximately $40 million to settle the SEC’s charges. These payments will be distributed to the affected mutual funds.

“This action demonstrates the Commission’s willingness to take strong action against hedge fund advisers and their employees when they violate the federal securities laws. Here, respondents did so by engaging in illegal late trading in mutual funds,” said Linda Chatman Thomsen, Director of the SEC’s Division of Enforcement.

Merri Jo Gillette, Director of the SEC’s Chicago Regional Office, said, “Ritchie Capital concealed its late trading by receiving pre-4 p.m. time-stamps on its order tickets. The respondents’ attempt to cover their tracks by using falsified order tickets merely underscores the egregiousness of the fraudulent scheme and commends the thorough and tenacious investigative work that uncovered it.”

The Commission’s Order finds that from January 2001 through September 2003, Ritchie Capital engaged in an illegal late trading scheme. Ritchie Capital placed thousands of late trades in mutual fund shares and used post-4 p.m. ET news and market information to make its mutual fund trading decisions while receiving the same day’s net asset value for the mutual funds traded. Thane Ritchie approved the use of late trading by Ritchie Capital’s mutual fund group and oversaw its performance. DeMaio supervised mutual fund trading at Ritchie Capital and was involved in the development of the late trading strategy. Mauriello was responsible for placing mutual fund late trades with brokers on behalf of Ritchie Capital. Ritchie Capital’s post-4 p.m. trading resulted in a profit of approximately $30 million to the Ritchie Multi-Strategy fund.

The Commission’s Order requires Ritchie Multi-Strategy Global Trading Ltd. and Ritchie Capital Management LLC to pay disgorgement, jointly and severally, of $30 million, and prejudgment interest thereon of approximately $7.4 million. Ritchie Capital and Ritchie will pay civil penalties, jointly and severally, totaling $2.5 million. DeMaio will pay $250,000 in civil penalties. These payments will be distributed to the affected mutual funds.

In addition to the disgorgement and civil penalties, the Commission’s Order requires that Ritchie Capital, the Ritchie Multi-Strategy fund, Thane Ritchie and Warren DeMaio cease and desist from committing or causing violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, Section 17(a) of the Securities Act of 1933, and Rule 22c-1 under the Investment Company Act, and that Ritchie Capital be censured and comply with certain undertakings. The Order also requires that Mauriello cease and desist from committing or causing violations of Rule 22c-1 under the Investment Company Act.

All respondents consented to the Commission’s Order without admitting or denying the findings. The Commission’s action was taken in coordination with the Office of the New York State Attorney General.

SEC Charges Former Dow Jones Board Member, Three Other Hong Kong Residents in $24 Million Insider Trading Settlement

The Securities and Exchange Commission today announced a $24 million settlement with a former Dow Jones & Company board member and three other Hong Kong residents accused of illegal tipping and insider trading ahead of news of an unsolicited buyout offer from News Corporation that sent Dow Jones shares soaring last spring.

The SEC's complaint filed in the U.S. District Court for the Southern District of New York alleges that David Li Kwok Po, a Dow Jones board member at the time who also is Chairman and CEO of the Bank of East Asia and a member of Hong Kong's Legislative Counsel and Executive Committee, learned of the then-secret News Corp. offer and illegally tipped his close friend Michael Leung Kai Hung.

The SEC complaint also alleges that Leung, with the help of his daughter Charlotte Ka On Wong Leung and son-in-law Kan King Wong purchased approximately $15 million worth of Dow Jones securities in their account at Merrill Lynch. They stood to make approximately $8 million in illicit profits had the SEC not won an emergency court order within days of the News Corp. offer, freezing the account and stopping the money from moving half a world away.

"Protecting the integrity of our markets in today's world of global trading and instant communications requires real-time enforcement across national borders," said SEC Chairman Christopher Cox. "This case makes clear that the SEC will move fast, and decisively, not only in the United States but around the world to protect investors from insider dealings and threats to fair and open markets. It also illustrates the value of the significant international partnerships we are developing with our regulatory partners in other nations."

"Insider trading on merger and acquisition information continues to be a top enforcement priority," said Linda Chatman Thomsen, Director of the SEC's Division of Enforcement. "We hope this case sends a forceful reminder to corporate insiders that they need to exercise careful discretion when discussing important business matters outside the boardroom and executive suite."

Cheryl J. Scarboro, Associate Director in the Division of Enforcement, added, "Tipping and trading by corporate insiders corrupts our markets, and today's action demonstrates our ability to stop this type of misconduct in its tracks - no matter where it occurs and who is involved."

Without admitting or denying the Commission's allegations, David Li, Michael Leung, K.K. Wong and Charlotte Wong consented to the entry of court orders enjoining them from violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. David Li is ordered to pay an $8.1 million civil penalty. Michael Leung is ordered to pay $8.1 million in disgorgement plus prejudgment interest and an $8.1 million penalty. K.K. Wong is ordered to pay $40,000 in disgorgement plus prejudgment interest and a $40,000 civil penalty.

The SEC previously filed an emergency action against the Wongs on May 8, 2007, in U.S. District Court for the Southern District of New York for alleged trading on inside information. The court entered a Temporary Restraining Order freezing assets and imposing other relief (see LR-20106). In its amended complaint filed today, the Commission also alleges that K.K. Wong bought 2,000 Dow Jones shares in his TD-Ameritrade account and made approximately $40,000 in profits.

The Commission acknowledges the assistance of Merrill Lynch & Co. and the Hong Kong Securities and Futures Commission in this matter.

SEC, SEBI Announce Increased Cooperation and Collaboration of Capacity Building Events in India

The Securities and Exchange Commission and the Securities and Exchange Board of India (SEBI) today announced terms for increased cooperation and collaboration.

SEC Chairman Christopher Cox and SEBI Chairman M. Damodaran elaborated the terms establishing the structure of, and agenda for, an SEC-SEBI dialogue. This new dialogue has three main objectives:

• Identify and discuss regulatory issues of common concern


• Continue and expand upon the existing program of capacity-building and technical cooperation between the SEC and the SEBI


• Improve cooperation and the exchange of information in cross-border securities enforcement matters

"As financial services and investment continue to grow and expand between the United States and India, the SEC and SEBI are increasingly working together to facilitate our aims of investor protection and healthy markets," said Chairman Cox. "The SEC has worked with SEBI over the past few years on extensive capacity-building programs as well as enforcement matters. I look forward to continuing and strengthening our regulatory and enforcement cooperation with SEBI through this high-level dialogue."

Chairman Damodaran said, "Given the role that emerging and recently emerged markets play in an increasingly globalised financial world, it is only befitting that the SEBI and SEC work closely for the protection of investors and for ensuring fair, efficient and transparent markets. The high level discussions between the two regulators, while promoting capacity building, would also enable both the SEBI and SEC to take suitable joint and collective action where needed."

Ethiopis Tafara, Director of the SEC Office of International Affairs, said, "This framework for discussion will benefit and shape the SEC staff's continued interaction with officials from the SEBI. The SEC staff has engaged in over two dozen projects related to the Indian markets and met with over 1,000 Indian officials. The new dialogue will build upon these efforts and provide the SEC and SEBI with further opportunities to enhance securities regulation."

The dialogue will be composed of regular meetings and ad hoc information exchange at the staff level and between high-level representatives of the SEC and SEBI.

Given recent developments in both the U.S. and Indian markets, the following topics have been identified for discussion for the dialogue over the coming year:

• Oversight of dually regulated entities


• Regulatory and compliance issues relating to outsourcing


• Accounting and auditing standards


• Corporate governance standards and internal controls


• Areas for continued capacity-building and technical cooperation


• Cross-border cooperation and information sharing in securities enforcement matters

The SEC and SEBI agree that this is not an exclusive list of issues to be discussed in the dialogue and that the list may be revised as new regulatory issues affecting the India and U.S. markets emerge in the course of the year.

The SEC-SEBI dialogue was announced after completion of an extensive two-week, SEC-SEBI capacity-building and technical cooperation session on a variety of topics held in India at the end of December 2007. Highlights of the capacity-building effort were two training programs and a CCOutreach program for chief compliance officers of U.S. registered investment advisers located in Asia. In the CCOutreach program, topics included compliance risk assessment, establishing and testing compliance controls and common deficiencies found in SEC examinations.

The capacity-building programs conducted by the SEC involved a four-day training program in Mumbai on Securities Market Oversight and Enforcement which 55 Indian regulators attended. Topics included broker-dealer compliance, hedge fund regulatory concerns, broker-dealer and investment adviser inspections, insider trading, and market manipulation. The SEC also conducted a two-day training program in New Delhi on corporate finance and corporate disclosure which 25 officials for SEBI regional offices attended. Topics included the offering process, financial fraud, asset-backed securities and corporate governance.

NYSE MatchPoint Rules Approved by SEC

NYSE Euronext (NYSE Euronext: NYX) today announced that the U.S. Securities and Exchange Commission has approved the rules for NYSE MatchPoint, a new, portfolio-based, point-in-time electronic facility of the New York Stock Exchange that matches aggregated orders at predetermined sessions throughout regular hours and after hours of the Exchange. MatchPoint will trade securities listed on all major and regional U.S. stock exchanges. It is expected to begin operation on January 22, 2008.

“NYSE MatchPoint is a major step forward in our broad initiative to provide investors with a choice of how to transact trades at the New York Stock Exchange,” said Lawrence Leibowitz, Head of U.S. Products, NYSE Euronext. “It’s unique in the exchange environment due to its portfolio-based approach. By offering MatchPoint and our recently-announced joint venture with BIDS, w e’re providing investors two new, complementary ways to trade block orders.”

“NYSE MatchPoint will leverage the neutrality of the New York Stock Exchange with open connectivity and comprehensive regulatory infrastructure to provide a nondisplayed trading environment unlike any other,” said James G. Ross, Vice President, NYSE MatchPoint. “Both portfolio-based and single block trade investors will each find immense added value in this new, centralized facility of the Exchange.”

The first NYSE MatchPoint matching session will be an after hours match at 4:45 p.m. that uses the official closing price of the primary market. Soon, matching sessions will be established during regular hours of the Exchange. The first will take place at 9:45 a.m. , followed by matching sessions at 10 a.m. , 11 a.m. , 12 noon, 1 p.m., 2 p.m., and 3 p.m. T he price of the intraday match will be the mid-point of the NBBO that is randomly selected during a one-minute pricing period. An investor may enter one portfolio of buy and sell/short orders, a single block order or multiple portfolios of buy and sell /short orders.

Investors that rely on index-based or model-driven trading and investment strategies will find NYSE MatchPoint’s portfolio-based capabilities to be a very effective trading tool. In addition, NYSE MatchPoint’s non-displayed, point-in-time approach aggregates individual block orders and increases the depth of the liquidity pool and enhances the opportunity of a natural match.

Participation in crossing services has grown significantly in the past couple of years, so the NYSE MatchPoint initiative presents a sizeable opportunity. The new NYSE crossing service is uniquely positioned over existing offerings given the combination of sophisticated portfolio-based trading technology (including cash constraints), competitive pricing, and exchange neutrality. NYSE MatchPoint is expected to attract broad participation from broker/dealers, as well as institutions and hedge funds through broker sponsorship.

For more information about NYSE MatchPoint see: nyse.com/matchpoint.

About NYSE Euronext

NYSE Euronext, a holding company created by the combination of NYSE Group, Inc. and Euronext N.V., commenced trading on April 4, 2007. NYSE Euronext (NYSE Euronext: NYX) operates the world’s largest and most liquid exchange group and offers the most diverse array of financial products and services. NYSE Euronext, which brings together six cash equities exchanges in five countries and six derivatives exchanges in six countries, is a world leader for listings, trading in cash equities, equity and interest rate derivatives, bonds and the distribution of market data. Representing a combined $30.3 trillion/€21.3 trillion total market capitalization of listed companies and average daily trading value of approximately $139 billion/€103 billion (as of September 30, 2007), NYSE Euronext seeks to provide the highest standards of market quality and integrity, innovative products and services to investors, issuers, and all users of its markets. NYSE Euronext is part of the S&P 500 and S&P 100 indexes.

SEC Halts Fraudulent Global Pyramid Scheme Preying on Hispanic Community

The Securities and Exchange Commission has won an asset freeze and other emergency relief to halt a massive pyramid scheme with as many as 70,000 victims in 64 countries. The scheme involving the purported sale of English and Spanish language tutorials particularly preyed on Hispanic communities in Orlando, Fla., and Puerto Rico.

The case was unsealed yesterday by the court, which issued the emergency order and asset freeze on Dec. 6, 2007. The SEC charged Robert Lane, Wealth Pools International, Inc., and Recruit For Wealth, Inc. with the fraudulent offer and sale of unregistered securities in the form of "Associate" memberships in an enterprise called Wealth Pools. The fraudulent offering began in 2005 and the defendants claim to have raised more than $132 million in 2007 alone, according to the SEC's complaint.

Linda Chatman Thomsen, Director of the SEC's Division of Enforcement, said, "This action reaffirms the Commission's commitment to protecting investors from fraudulent securities offerings, and particularly affinity frauds that seek to exploit an ethnic group."

David Nelson, Director of the SEC's Miami Regional Office, added, "This scheme was targeted at Hispanic communities both in the United States and overseas. Our action is designed to preserve and recover as many assets as possible for the benefit of harmed investors."

Wealth Pools purports to be a multi-level marketing company primarily selling an English and Spanish language tutorial DVD called Talk-N-Tutor through a network of sales Associates around the world, the SEC alleges in its complaint. The DVD is, in reality, a front for Wealth Pools's true product - an investment in one or more "pools" that offer investors an opportunity to receive passive income through the efforts of others to recruit new investors, according to the complaint.

The SEC alleges that investors do not profit from the sale of DVDs to consumers, but from the recruitment of new investors termed "Associates."

The SEC's complaint further charges the defendants with luring investors through "Opportunity Meetings" held in Puerto Rico, at the Wealth Pools Orlando headquarters, and live on the Internet. The defendants enticed investors to purchase thousands of DVDs by falsely promising them that they would earn income for life with no further effort, according to the SEC's complaint. The SEC also charged the defendants with failing to disclose, among other things, that Wealth Pools is a pyramid scheme utterly dependent on an ever increasing number of new investors to pay existing ones, and is destined to collapse, leaving investors with substantial losses. Furthermore, the SEC alleges that the defendants do not disclose the dilutive effect of new investors on all investors' returns, which renders baseless the defendants representations that 97 percent of Associates make money and receive a lifetime of passive income. Finally, the complaint alleges that the defendants do not disclose that Lane was president of another company that used similar methods that failed, resulting in it declaring bankruptcy and being enjoined by the State of Florida.

The SEC filed its action in the U.S. District Court for the Middle District of Florida on Dec. 5, 2007, seeking a temporary restraining order, preliminary and permanent injunctions, disgorgement of ill-gotten gains plus prejudgment interest, and civil penalties. The complaint alleges that the defendants violated the antifraud provisions 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, and the securities registration provisions of Sections 5(a) and 5(c) of the Securities Act of 1933. The SEC also named as relief defendants members of Robert Lane's family and other related entities who received investor proceeds raised in the fraudulent and unregistered offering.

On Dec. 6, 2007, the Honorable John Antoon II, U.S. District Judge, entered, ex parte, an emergency order temporarily restraining the defendants and freezing the assets of Wealth Pools International, Inc., Recruit For Wealth, Inc., Robert Lane, and relief defendants Julia Lane, Richard Lane, Renee Becker, T-N-T Education, Inc., Mundo Trade, Inc., and First Fiduciary Business Trust. The order also provides for expedited discovery, a sworn accounting and the preservation of records. The Court also appointed Denise Dell-Powell, an attorney in the law firm of Akerman Senterfitt of Orlando, as a receiver over Wealth Pools International, Inc. and Recruit For Wealth, Inc. Among other things, the receiver is responsible for marshaling and safeguarding assets held by these entities. A show cause hearing has been set for Dec. 13, 2007, in Orlando to determine whether the emergency asset freeze and other relief should remain in effect.

Investors are encouraged to read the SEC's "Affinity Fraud" Investor Alert, which provides tips on how to avoid being a victim in an affinity fraud. This and other investor alerts can be found on the SEC's Web site, at www.sec.gov/investor/pubs.shtml.

SEC Charges San Diego's Independent Auditor for Fraud in Connection With City Municipal Securities Offerings

The Securities and Exchange Commission filed a settled civil fraud action yesterday against San Diego's independent auditor in connection with the city's false and misleading financial statements in five 2002 and 2003 bond offerings.

According to the Commission's complaint, the independent auditor issued unqualified audit reports on the bond offerings that raised $260 million from investors but contained materially false and misleading information about San Diego's pension and retiree health care obligations.

The Commission charges against certified public accountant Thomas J. Saiz and his firm, Calderon, Jaham & Osborn (CJO), allege that they failed to comply with generally accepted accounting standards, were not knowledgeable about San Diego, and failed to obtain sufficient competent evidential matter.

"Auditors play an important role in providing investors with material information in municipal securities offerings," said Linda Chatman Thomsen, Director of the SEC's Enforcement Division. "It is therefore critical that auditors of municipalities conduct their audits with a high degree of rigor, competence and independence, and that cities hire auditors who have the technical skills, experience and resources to conduct proper audits and not hire auditors based primarily on the lowest bid or other factors unrelated to the auditor's skills, resources and abilities."

Rosalind Tyson, Acting Regional Director of the SEC's Los Angeles Regional Office, added, "Saiz, like many independent auditors of municipalities, participated in drafting the footnote disclosures to the city's financial statements. Saiz failed to exercise proper professional care and skepticism to see that San Diego disclosed both the positive and negative information regarding its pension and retiree health care obligations."

According to the Commission's complaint, San Diego was the seventh largest city in the United States in 2001 and 2002, with revenues exceeding $1 billion per year and assets in excess of $10 billion. San Diego's pension plan had net assets of $2.5 billion and total additions to the plan of more than $85 million. CJO was the independent auditor for San Diego and its pension plan in 2001 and 2002, and Saiz was sole shareholder of CJO, which had approximately 30 employees.

The Commission's complaint alleges that Saiz and CJO drafted, subject to San Diego's review and approval, the disclosures in footnotes to the city's financial statements. The footnotes disclosed that San Diego was under-funding its annual pension contribution but also included positive statements about the city's method for funding its pension obligations. These statements included that the city's funding method contained a provision to ensure that the pension's funded level would not drop below a certain level to protect the pension plan's financial integrity; that the pension plan's actuary believed that the city's pension funding method was an excellent method for the city; and that the total amount that the city had under-funded its annual pension contribution, or net pension obligation, was funded in a reserve.

The SEC's complaint alleges that these statements were false and misleading because the city's net pension obligation was not funded in a reserve and, in 2002, the pension plan had fallen below a funded level that the actuary deemed appropriate and the actuary no longer supported the city's funding method. The complaint further alleges that Saiz and CJO knew or were reckless in not knowing that the disclosure was false and misleading as a result of information Saiz received from his audits of the city and its pension plan and his review of the city's bond offering documents.

CJO and Saiz also drafted footnotes that disclosed that the city provided health benefits to retirees at a cost of $7.2 million in 2001 and $8.9 million in 2002 and that the expenses for such benefits were recognized as they were paid. The complaint alleges that Saiz and CJO knew or were reckless in not knowing that this disclosure was misleading because it failed to disclose, as Saiz and CJO knew from auditing the city and its pension plan, that the retiree health care expense was being paid with earnings from the pension plan and that the city would soon have to begin paying this substantial expense out of its own budget.

According to the SEC's complaint, Saiz and CJO also audited San Diego's financial statements and issued reports falsely stating that the financial statements were fairly presented in conformity with generally accepted accounting principles (GAAP) and the audits were performed in accordance with generally accepted auditing standards (GAAS). Saiz and CJO also consented to San Diego's including CJO's audit report in its 2002 and 2003 municipal securities offerings. As alleged in the complaint, the false and misleading statements regarding the city's pension obligations were not presented in conformity with GAAP.

The Commission's complaint also alleges that at the time they consented to San Diego's including the audit report in the 2003 offering documents, Saiz and CJO also failed, as required by GAAS, to inquire into the recent substantial increase in the city's obligations to its pension to determine whether the financial statements or the audit report required revision.

Without admitting or denying the allegations in the complaint filed in federal district court in San Diego, Saiz and CJO have consented to the entry of final judgments permanently enjoining them from violating the antifraud provisions of the federal securities laws. Additionally, Saiz has agreed to pay a $15,000 civil penalty.

The Commission previously entered an order sanctioning the City of San Diego for committing securities fraud by failing to disclose to the investing public important information about its pension and retiree health care obligations in the sale of its municipal bonds in 2002 and 2003. To settle the action, the city agreed to cease and desist from future securities fraud violations and to retain an independent consultant for three years to foster compliance with its disclosure obligations under the federal securities laws.

The Commission's investigation is ongoing as to other individuals and entities that may have violated federal securities laws.

NASDAQ Supports New SEC Rules Allowing Non-U.S. Companies to File Financial Statements Using International Financial Reporting Standards

The Nasdaq Stock Market, Inc. ("NASDAQ(r)") (Nasdaq:NDAQ) announced it fully supports the Securities and Exchange Commission's (SEC) decision today to allow non-U.S. companies to file their financial statements with the SEC using International Financial Reporting Standards (IFRS). The SEC's new rules eliminate the need for non-U.S. companies to reconcile their financial statements prepared under IFRS with U.S. Generally Accepted Accounting Principles (U.S. GAAP).

To enable NASDAQ-listed companies to take full advantage of this change, NASDAQ today submitted a proposal to the SEC to allow non-U.S. companies to satisfy NASDAQ's financial listing requirements using IFRS. NASDAQ's filing will be subject to public comment and must be approved by the SEC.

"The SEC's action will help increase the attractiveness of the U.S. as a place to raise capital," said Bruce Aust, Executive Vice President of NASDAQ's Corporate Client Group. "It removes unnecessary costs and steps that create barriers to attracting international companies. The SEC's decision clearly communicates that the U.S. markets are dedicated to wringing the cost and inefficiency out of doing business in the U.S."

About NASDAQ

NASDAQ is the largest U.S. equities exchange. With approximately 3,100 companies, it lists more companies and, on average, trades more shares per day than any other U.S. market. It is home to companies that are leaders across all areas of business including technology, retail, communications, financial services, transportation, media and biotechnology. NASDAQ is the primary market for trading NASDAQ-listed stocks as well as a leading liquidity pool for trading NYSE-listed stocks. For more information about NASDAQ, visit the NASDAQ Web site at www.nasdaq.com

Chevron to Pay $30 Million to Settle Charges For Improper Payments to Iraq Under U.N. Oil For Food Program

The Securities and Exchange Commission today charged Chevron Corporation for its role in illegal kickback payments that were made to Iraq in 2001 and 2002 in connection with the company's purchases of crude oil under the U.N. Oil for Food Program.

Chevron, based in San Ramon, Calif., agreed to pay $30 million to settle the charges brought under the Foreign Corrupt Practices Act (FCPA) without admitting or denying the SEC's allegations.

The U.N. Oil for Food Program was intended to provide humanitarian relief to the Iraqi people while Iraq was subject to international trade sanctions. According to the Commission's complaint, third parties under contract with Chevron made approximately $20 million in illicit payments that bypassed the Oil for Food escrow account and were paid directly to Iraqi-controlled bank accounts in Jordan and Lebanon. The SEC alleged that Chevron knew, or should have known, that third parties were using portions of the premiums they received from Chevron's oil purchases to pay illegal surcharges to Iraq. The SEC also alleged that Chevron failed to devise and maintain a system of internal accounting controls to detect and prevent such illicit payments, and Chevron's accounting for its Oil for Food transactions failed to properly record the true nature of the company's payments to third parties.

"This is the Commission's fifth action against a company for participating in the Oil for Food kickback scheme and demonstrates our continuing commitment to combating violations of the Foreign Corrupt Practices Act," said Linda Chatman Thomsen, Director of the SEC's Division of Enforcement.

Cheryl Scarboro, an Associate Director in the Division of Enforcement, added, "The Commission will continue to vigorously enforce the books and records and internal controls provisions of the Foreign Corrupt Practices Act to combat illicit kickbacks."

According to the Commission's complaint, filed in the U.S. District Court for the Southern District of New York, Chevron learned of surcharge demands by Iraq's State Oil Marketing Organization (SOMO) in January 2001 and adopted a company-wide policy prohibiting their payment. The policy required traders to obtain prior written approval for all proposed Iraqi oil purchases and charged management with reviewing each proposed Iraqi oil deal.

Chevron subsequently purchased approximately 78 million barrels of crude oil from Iraq pursuant to 36 contracts with third parties from April 17, 2001, through May 6, 2002. In doing so, the Commission alleges, Chevron's traders failed to follow the company-wide policy and Chevron's management did not ensure compliance. Despite being required to consider the identity, experience and reputation of a third-party seller prior to approving a proposed Iraqi oil purchase, Chevron's management relied on its traders' representations.

In one instance, a credit check by Chevron of a proposed third-party seller revealed that the seller was a "brass plate company." This meant that the company had no experience in the oil business, no real business operations, and no known assets. Despite concerns on the part of Chevron's management, Chevron entered into two transactions to purchase three million barrels of oil from the third party in January 2002. Illegal surcharges were paid on both of these transactions and passed back to Chevron in inflated premiums that Chevron paid to the third party.

Also according to the SEC's complaint, a third-party seller whose company occasionally sold oil to Chevron stated that the trader he dealt with at Chevron and the trader's bosses always knew about the illegal surcharge demands by Iraq. The Chevron trader asked the third-party seller to persuade Iraq to reduce the amount of its surcharges. Despite Chevron's premium payments to third parties increasing after Iraq's surcharge demands began, Chevron's management routinely approved the Iraqi oil purchases proposed by its traders.

Chevron consented to the entry of a final judgment permanently enjoining it from future violations of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934, and ordering it to disgorge $25 million in profits and pay a $3 million civil penalty. Chevron also will pay the Office of Foreign Asset Controls of the U.S. Department of Treasury a penalty of $2 million. Chevron will satisfy its disgorgement obligation by forfeiting $20 million pursuant to an agreement with the U.S. Attorney's Office for the Southern District of New York and paying disgorgement of $5 million pursuant to an agreement with the Manhattan District Attorney's Office.

The Commission acknowledges the assistance of the U.S. Attorney's Office for the Southern District of New York, the Manhattan District Attorney's Office, the Office of Foreign Asset Controls at the U.S. Department of Treasury, and the United Nations Independent Inquiry Committee. The Commission also acknowledges Chevron's cooperation in the investigation. The SEC's Oil for Food investigation is continuing.

SEC Charges New York Hedge Fund Adviser With Short Sale Violations in Connection With Hibernia-Capital One Merger

The Securities and Exchange Commission today announced a settled enforcement action against New York hedge fund adviser Sandell Asset Management Corp. (SAM), its chief executive officer, and two other employees for engaging in improper short sales in connection with trading in the securities of Hibernia Corporation in the immediate aftermath of Hurricane Katrina.

Hibernia was a New Orleans-based bank holding company and the subject of an acquisition agreement with Capital One Financial Corporation at the time Katrina occurred. As part of its merger arbitrage investment strategy, SAM held a large long position in Hibernia. According to the Commission's Order, SAM personnel believed that Capital One would lower its offering price for Hibernia shares in the wake of Katrina. In an attempt to offset an anticipated loss to a client, SAM personnel began to sell short as many shares of Hibernia stock as possible, improperly marking certain sales orders as "long" or misrepresenting to the broker-dealers executing some of the trades that they had located stock to borrow.

"Today's action is part of our ongoing effort to ensure that hedge funds comply with the federal securities laws, including all applicable trading rules," said Linda Chatman Thomsen, Director of the SEC's Division of Enforcement.

Scott W. Friestad, Associate Director of the SEC's Division of Enforcement, added, "By mismarking certain trades and falsely claiming that firm personnel had located stock to borrow, Sandell Asset Management gained an unfair trading advantage over other market participants. This settlement deprives the firm of the profits made from the improper trading, and includes penalties and other sanctions designed to deter others from engaging in similar misconduct."

Without admitting or denying the Commission's findings, SAM agreed to pay more than $8 million to settle the charges, including $6,716,683.93 in disgorgement, $730,811.74 in prejudgment interest, and a $650,000 civil penalty. Also charged were the firm's CEO Thomas Sandell, senior managing director Patrick Burke, and head trader Richard Ecklord, all of whom consented to the Commission's Order without admitting or denying wrongdoing. Sandell, Burke and Ecklord were ordered to pay civil penalties of $100,000, $50,000 and $40,000, respectively.

The Commission's Order finds that, after the Hibernia-Capital One merger was announced on March 6, 2005, SAM purchased approximately 9.3 million shares of Hibernia stock for one of the firm's hedge fund clients. Thereafter, SAM sold the Hibernia shares to third parties and entered into "swap" transactions with them. The hedge fund managed by SAM no longer owned the Hibernia shares, but retained all of the economic risk of loss if the price of the shares declined.

On Aug. 29, 2005, Hurricane Katrina struck New Orleans, where Hibernia was headquartered and maintained substantial assets. On Aug. 31, 2005, in its effort to offset a potential loss to its client, SAM personnel improperly marked certain sales orders as "long" even though they were, in fact, short. On Sept. 2, 2005, SAM personnel made some additional short sales by representing to the broker-dealers executing the trades that they had located stock to borrow, when in fact they had not. The Commission's Order finds that the Aug. 31 trades violated Section 10(a) of the Securities Exchange Act of 1934 and Exchange Act Rule 10a-1 and that the Sept. 2 trades violated Section 17(a)(2) of the Securities Act of 1933.

The Commission's Order censures each of the respondents and orders SAM to cease and desist from committing or causing future violations of Section 17(a)(2) of the Securities Act.


Additional materials: Administrative Proceeding 33-8857

SEC Takes Another Bite Out of E-Mail Spam With Three More Trading Suspensions

The Securities and Exchange Commission this morning continued its assault on stock market e-mail spam by suspending trading in the securities of three companies that haven't provided adequate and accurate information about themselves to the investing public.

The trading suspensions are part of the Commission's Anti-Spam Initiative announced earlier this year that cuts the profit potential for stock-touting spam and is credited for a significant worldwide reduction of financial spam. A recent private-sector Internet security report stated that a 30 percent decrease in stock market spam "was triggered by actions taken by the U.S. Securities and Exchange Commission, which limited the profitability of this type of spam."

In addition, spam-related complaints to the SEC's Online Complaint Center have been cut in half.



"The SEC is moving aggressively against stock market spam that has been clogging our e-mail inboxes for too long," said SEC Chairman Christopher Cox. "Because of our aggressive enforcement efforts, there has been a reported 30 percent drop in financial spam, and that means fewer investors are getting ripped off."

Since the March 8, 2007 launch of its Anti-Spam Initiative to combat spam-driven stock market manipulations, the Commission has suspended trading in the securities of 39 companies and has brought several spam-related enforcement actions.

Mark K. Schonfeld, Director of the Commission's New York Regional Office, said, "Today's trading suspensions exemplify our firm commitment to protecting investors from stock fraud and spam e-mail. Investors are entitled to accurate and adequate information about public companies, and we will take strong action promptly when companies fail to fulfill this obligation."

Today's trading suspensions pertain to the securities of Alliance Transcription Services, Inc. (ATSS), Prime Petroleum Group, Inc. (PPGU), and T.W. Christian, Inc. (TWCI). The companies are recent successors to Strategy X, Inc., Pinnacle Development, Inc. and Xraymedia, Inc., respectively. Each of the companies changed its name on Aug. 14, 2007, is currently quoted under a new ticker symbol, and purports to have a new business. The companies, all of which trade on the Pink Sheets, are susceptible to spam stock promotions because they have inadequately disclosed their assets, business operations and/or management, their current financial condition, and/or financing arrangements involving the issuance of the companies' shares.

The trading suspensions will last for 10 business days, commencing today at 9:30 a.m. EDT and terminating at 11:59 p.m. EDT on Oct. 17, 2007.

The success of the SEC's Anti-Spam initiative is described in the Symantec Internet Security Threat Report, a semi-annual analysis and discussion of online threat activity during the previous six-month period. The most recent report was released Sept. 17, 2007: http://www.symantec.com/threatreport. The SEC's efforts are cited on page 107 of the report

"Spam related to financial services made up 21 percent of all spam in the first six months of 2007, making it the second most common type of spam during this period. The previous edition of the Internet Security Threat Report reported that Symantec had detected an increase in spam related to the financial services sector over the last six months of 2006. This was primarily due to an abundance of stock market "pump and dump" spam. However, in the current period, there has been a 30 percent decline in this type of spam from the previous period. This is due to a decline in spam touting penny stocks that was triggered by actions taken by the United States Securities and Exchange Commission, which limited the profitability of this type of spam by suspending trading of the stocks that are touted."

The SEC Division of Enforcement's Online Complaint Center similarly indicates a 30 percent decrease in spam-related complaints during the same 12-month period, with complaints dropping from more than one million complaints during the final six months of 2006 to 727,313 during the first 6 months of 2007. Moreover, while the Online Complaint Center received 166,741 complaints in February 2007 before the SEC unveiled its anti-spam initiative in March, the number of complaints about financial spam dropped to 67,785 last month - a nearly 60 percent decrease.

The Online Complaint Center can be reached at enforcement@sec.gov. The SEC's Office of Investor Education and Assistance has information for investors and members of the general public on topics directly related to this action by the SEC. See http://www.sec.gov/investor/35tradingsuspensions.htm for a compilation of helpful links.

Any broker, dealer or other person with information relating to this matter is invited to e-mail the Securities and Exchange Commission at 35suspensions@sec.gov.

SEC Online Complaint Center Data:

Month Complaints
June 2006 118,741
July 2006 121,531
Aug. 2006 165,434
Sept. 2006 128,811
Oct. 2006 178,657
Nov. 2006 220,486
Dec. 2006 221,036
Jan. 2007 163,522
Feb. 2007 166,741
March 2007 127,465
April 2007 111,382
May 2007 88,236
June 2007 69,967
July 2007 86,759
Aug. 2007 84,222
Sept. 2007 67,785

Three Former Dynegy Executives Settle SEC Charges for Manipulating Financial Statements

The Securities and Exchange Commission today announced settled enforcement actions against former Dynegy Inc. chief financial officer Robert D. Doty, Jr. and two other former executives at the Houston-based energy company for their roles in a $300 million accounting fraud known as Project Alpha.

According to the Commission's Order, Doty was involved in the decision to proceed with Project Alpha and improperly disguise a loan as operating cash flow in order to minimize the gap between Dynegy's reported net income and cash flow from operations, and to realize as net income a related $79 million tax benefit that was invalid. Furthermore, Doty was involved in the decision not to make any separate disclosure to investors about Alpha's unique, non-commercial pricing characteristics. Doty will pay more than $375,000 to settle the SEC's charges.

"This case demonstrates that we will hold accountable anyone involved in manipulating a public company's financial statements," said Rose Romero, Regional Director of the SEC's Fort Worth Regional Office. "The enforcement actions announced today reflect the Commission's commitment to ensuring that both companies and the individuals who work for them are honest and straightforward with investors."

Dynegy's former vice president of taxation, Gene S. Foster, and former manager of accounting-deal structure, Helen C. Sharkey, also settled with the Commission regarding their roles in the creation and implementation of Project Alpha. According to the Commission's Orders, both willfully disregarded accounting advice from Dynegy's outside auditor, and concealed critical transaction details from the auditor in violation of federal securities laws. Without admitting or denying the Commission's findings, Foster and Sharkey consented to orders permanently enjoining them from future violations of the antifraud and internal controls provisions of federal securities laws. They also consented to administrative orders barring them from appearing or practicing before the Commission as accountants.

A third defendant in the Commission's civil enforcement action, Jamie Olis, recently asserted a counterclaim for attorney fees and costs. The Court struck down his counterclaim on September 7, 2007, and then granted the Commission's motion to dismiss its claims against Olis, Dynegy's former vice president of finance. Olis is currently incarcerated after being convicted in a parallel criminal proceeding of six felony counts relating to his role in Project Alpha. The Commission also issued an administrative order permanently suspending Olis from appearing or practicing before the Commission based on his criminal convictions.

Doty, without admitting or denying the Commission's findings, agreed to a federal district court judgment requiring him to pay a civil penalty of $120,000 and prohibiting him from serving as an officer or director of a public company for a period of five years. Doty also consented to a public administrative and cease-and-desist order requiring him to pay disgorgement of $200,000 and prejudgment interest of $56,560, and suspending him from appearing or practicing before the Commission as an accountant for five years. The order also directs Doty to cease and desist from committing or causing future violations of the antifraud and internal controls provisions of the federal securities laws, or aiding and abetting or causing violations of the record-keeping and reporting provisions.

Dynegy previously settled SEC charges in 2002 that it had engaged in accounting improprieties and made misleading disclosures about a financing transaction involving special-purpose entities (SPEs). The Commission had found that Dynegy violated federal securities laws by improperly disguising the $300 million loan as cash flow from operations on its financial statements, thereby misleading investors about the level of its energy trading activity.

In July 2003, the Commission issued a settled cease-and-desist order against Citigroup for its role in Project Alpha. In its order, the Commission found that Citigroup was a cause of Dynegy's violations. Citigroup paid $19 million to settle the proceeding.

The Commission acknowledges the assistance of the United States Attorney's Office for the Southern District of Texas, the Federal Bureau of Investigation and the United States Postal Inspection Service.

General American Life Insurance Company, Former Senior VP Settle Late Trading Charges

The Securities and Exchange Commission today announced a settled enforcement action against General American Life Insurance Company and a former senior vice president, William C. Thater, for their roles in a late trading scheme. General American is a St. Louis-based insurance company and subsidiary of MetLife, Inc.

General American will pay a civil penalty of $3.3 million and Thater will pay disgorgement, prejudgment interest and civil penalties totaling $163,137 to settle charges that Thater permitted and General American failed to prevent late trading of mutual funds underlying one of General American's variable insurance products. The payments will be distributed to the affected funds. The Commission's order finds that Thater, 52, of Danbury, Conn., entered into a written agreement that gave a New York family exclusive late trading privileges in mutual funds underlying the private placement life insurance policies the family purchased from General American for approximately $20 million.

“By permitting a wealthy family to late trade, William Thater elevated the interests of a few select individuals over other investors,” said Linda Chatman Thomsen, Director of the Commission’s Division of Enforcement. “Whether it’s late trading of mutual funds directly or those that are part of variable insurance products, the Commission will continue to hold individuals and entities accountable for wrongful practices that unlawfully favor some investors over others.”

Merri Jo Gillette, Director of the Commission's Chicago Regional Office, said, "The Commission seeks to assure a level playing field for all investors, including investors in mutual funds. William Thater intentionally facilitated a late trading scheme and General American turned a blind eye to red flags, ignoring the interests of mutual fund investors who were harmed by this illegal conduct."

The Commission's Order finds that from Feb. 1, 2002, to Nov. 18, 2002, the New York family submitted, confirmed, or cancelled 79 mutual fund trade requests after 4 p.m. ET. As a result of the New York family's late trading, the value of the underlying mutual funds was diluted by approximately $3.3 million. Certain General American personnel became aware of the written agreement and the late trading activity, but failed to take adequate steps to investigate the activity and ensure that it ceased.

The Commission's Order requires in addition to the civil penalties that General American cease and desist from committing or causing violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933 and Rule 22c-1 under the Investment Company Act, and comply with certain undertakings. The Order requires Thater to cease and desist from committing or causing violations of Sections 17(a)(1) and 17(a)(3) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and Rule 22c-1 under the Investment Company Act. The Order also requires Thater to pay disgorgement, prejudgment interest and civil penalties, and be barred from association with any broker, dealer or investment adviser with the right to reapply after three years. General American and Thater have consented to the Commission's Order, without admitting or denying the findings.

SEC Files Fraud Charges Against Nicor's Former CEO, CFO and Treasurer

The Securities and Exchange Commission today announced the filing of a civil injunctive action against former senior officials of Nicor, Inc., a major Chicago-area natural gas distributor, alleging financial fraud lasting from 1999 to 2002. The SEC's complaint alleges that former Chairman, CEO and President Thomas Fisher, former CFO and Executive Vice-President Kathleen Halloran, and former Treasurer and Vice-President George Behrens engaged in or approved improper transactions, and misrepresented Nicor's gas inventory in order to meet earnings targets and increase the company's revenues under a performance-based utility rate plan.

Linda Thomsen, Director of the Commission's Division of Enforcement, said, "This action against three senior officers of Nicor demonstrates the Commission's continued commitment to holding individual decision makers accountable for their conduct when it results in fraudulent financial statements."

Merri Jo Gillette, Director of the Commission's Chicago Regional Office, added, "Fisher, Halloran and Behrens engaged in a scheme to manipulate Nicor's earnings through fraudulent transactions and mislead investors by making improper disclosures regarding Nicor's financial performance. This case, like others, shows that the Commission will not tolerate accounting ploys and misleading disclosures by senior officers who are intent on making their numbers."

The complaint alleges that in 1999, Fisher, Halloran and Behrens participated in devising a method by which Nicor could profit by accessing its low-cost last-in, first-out (LIFO) layers of gas inventory. As a result, the former officers engaged in or approved improper transactions, and made material misrepresentations in financial statements and documents filed with the Commission. They also failed to disclose material information regarding Nicor's rigged reductions in gas inventory levels that enabled it to improperly manipulate its earnings and to increase Nicor's revenues under a performance-based utility rate plan. In addition, the former officers materially understated Nicor's expenses during the first and second quarters of 2001 by improperly bundling a weather-insurance contract with an agreement to supply gas to Nicor's insurance provider at below-market prices. Moreover, they caused the losses on the supply agreement with the insurance provider to be improperly charged to Nicor's utility customers. These improper transactions enabled Nicor to understate its expenses and to manipulate its earnings to achieve its earnings targets. As a result of the manipulative scheme, Nicor materially overstated its reported income for the years ending 2000 and 2001, and for each of the quarters within those years and the financial statements filed with those reports.

Additionally, the former officers failed to make disclosures required by GAAP about the effects of LIFO inventory liquidations on Nicor's reported income. Nicor, through Fisher, Halloran and Behrens, failed to disclose in either the Management's Discussion & Analysis section of its 2000 and 2001 annual and quarterly reports, or in financial statements filed with those reports, that it had recorded material increases to income resulting from the liquidation of its LIFO inventory, and that the continued liquidation of Nicor's low-cost inventory was not sustainable.

On March 29, 2007, Nicor consented to the entry of a court order enjoining it from violating the antifraud and reporting provisions of the federal securities laws and ordering that it pay a $10 million civil penalty (LR-20060).

The Commission's action seeks injunctive relief, disgorgement, civil penalties, and officer and director bars against Fisher, Halloran and Behrens.

SEC Announces Settlement With Aspen Technology

The Securities and Exchange Commission today charged Aspen Technology, Inc., with fraudulently inflating revenue over a three-year period. The SEC's order finds that Aspen's former senior management, motivated by a desire to boost revenues and meet securities analyst earnings expectations, was directly involved in negotiating and improperly recognizing revenue on transactions.

The SEC's order directs Aspen, a software company based in Cambridge, Mass., to cease and desist from violating various provisions of federal securities laws, and requires Aspen to retain an independent consultant to review the company's financial and accounting policies and procedures. Aspen consented to the issuance of the order without admitting or denying any of the SEC's findings.

"Companies must take seriously their obligations to accurately report their financial results to their shareholders who depend on that information to make investment decisions," said Linda Chatman Thomsen, Director of the SEC's Division of Enforcement. "The management of reported earnings through premature revenue recognition will not be tolerated."

David P. Bergers, Director of the SEC's Boston Regional Office, added, "Aspen took significant remedial steps and cooperated extensively with the Commission's investigation. Aspen promptly self-reported the misconduct, conducted a thorough internal investigation, and shared the findings of that investigation with the staff. Consistent with the principles announced in the Commission's January 2006 Statement Concerning Financial Penalties, the Commission considered Aspen's remediation and cooperation, among other things, in deciding not to impose a penalty."

According to the SEC's order, Aspen - often acting through its former Chief Executive Officer, Chief Financial Officer and Chief Operating Officer - improperly recognized revenue on at least 19 different software license transactions involving at least 15 different customers worldwide. According to the order, the scheme involved premature recognition of revenue not recognizable under generally accepted accounting principles in the quarterly reporting periods claimed by Aspen either because contracts were not signed within the appropriate quarter or because the earnings process was incomplete due to side letters or other contingency arrangements. The SEC's order finds that, in several reporting periods, Aspen would not have met analysts' earnings expectations without the improperly recognized revenue.


The Commission previously filed a civil injunctive action on Jan. 8, 2007, against three former executives of Aspen in United States District Court for the District of Massachusetts. That case is still pending. (See LR-19960) In addition, on March 26, 2007, one of the former executives pleaded guilty to one count of conspiracy and one count of securities fraud in connection with related charges brought by the United States Attorney's Office for the Southern District of New York. (See LR-20059)

The Commission acknowledges the assistance and cooperation of the U.S. Attorney's Office for the Southern District of New York and the Federal Bureau of Investigation.

SEC Sues Cardinal Health, Inc. For Fraudulent Earnings and Revenue Management Scheme

The Securities and Exchange Commission today announced that Cardinal Health, Inc., a pharmaceutical distribution company based in Dublin, Ohio, has agreed to pay $35 million to settle charges that it engaged in a nearly four-year long fraudulent revenue and earnings management scheme, as well as other improper accounting and disclosure practices.

The Commission's complaint alleges that, from September 2000 through March 2004, Cardinal engaged in this conduct in order to present a false picture of its operating results to the financial community and the investing public - one that matched Cardinal's publicly disseminated earnings guidance and analysts' expectations, rather than its true economic performance. Through these practices, Cardinal materially overstated its operating revenue, earnings and growth trends in certain earnings releases and filings with the Commission.

Linda Thomsen, Director of the Commission's Division of Enforcement, said, "Cardinal's scheme deceived investors by presenting a string of revenue and earnings reports and other disclosures that reflected a false picture of Cardinal's financial performance. As this case demonstrates, issuers cannot resort to accounting ploys and misleading disclosures to make their numbers."

Antonia Chion, an Associate Director of the Commission's Division of Enforcement, said, "Sound financial reporting - the foundation of our capital markets - includes not only compliance with GAAP, but transparent disclosure of information that investors need to understand a company's performance. Cardinal's fraudulent mischaracterization of its operating revenues, as alleged, deprived investors of material information."

According to the complaint, Cardinal managed its reported revenue and earnings through a variety of undisclosed and improper actions. Cardinal inflated reported operating revenue by misclassifying more than $5 billion of bulk sales as operating revenue. Cardinal classified its revenue from drug distribution as either "bulk" revenue, which consisted of certain full case quantities of pharmaceutical products delivered to customer warehouses, or operating revenue, which consisted of all other sales. The complaint alleges that Cardinal implemented an undisclosed internal practice under which it reclassified any revenue from the sale of bulk product held on its premises for 24 hours or longer as operating revenue. As the complaint describes, Cardinal, among other improper practices, began intentionally holding certain bulk shipments for longer than 24 hours, in order to shift revenue from the bulk revenue line to the operating revenue line. The complaint alleges that Cardinal decided when to start and stop this practice based on the strength or weakness of quarterly sales and earnings.

According to the complaint, Cardinal also managed its reported earnings by:

selectively accelerating, without disclosure, the payment of vendor invoices in order to prematurely record a cumulative total of $133 million in cash discount income;
improperly adjusting reserve accounts, which misstated earnings by more than $65 million; and
improperly classifying $22 million of expected litigation settlement proceeds to increase operating earnings.
In addition, the complaint alleges that Cardinal failed timely to disclose the impact of a change in the method of applying its last-in-first-out (LIFO) inventory valuation accounting principle and, on one occasion, intentionally transferred inventory within business units in order to avoid a negative LIFO impact on year-end reported earnings. Furthermore, the complaint alleges that Cardinal prematurely recognized millions of dollars in revenue from Pyxis, a wholly-owned subsidiary it featured as an important growth driver.

The terms of the settlement reflect, and the Commission acknowledges, the cooperation provided by Cardinal during the course of the SEC investigation. Without admitting or denying the allegations of the Commission's complaint, Cardinal agreed to be permanently enjoined from violating the antifraud, reporting, record-keeping and internal controls provisions of the federal securities laws. Cardinal also agreed to pay $1 in disgorgement and a $35 million penalty, which the Commission will seek to place in a Fair Fund for distribution to affected shareholders. Cardinal also will engage an independent consultant to conduct a review of its disclosure processes, practices and controls, as well as those policies and procedures that relate to allegations in the Commission's complaint. The settlement is subject to court approval.

The Commission also acknowledges the assistance and cooperation of the U.S. Attorney's Office for the Southern District of New York. The Commission's investigation is continuing.

SEC Charges Former Chairman and CEO of Brooks Automation in Stock Option Fraud

The Securities and Exchange Commission has filed a civil fraud action against Robert J. Therrien, former President and CEO of Brooks Automation, Inc., a Massachusetts software company, alleging that he received millions of dollars in undisclosed compensation by fraudulently backdating his exercise of an option to purchase company stock.

Therrien also is alleged to have engaged in a broader fraudulent scheme to grant himself and other Brooks employees and executives undisclosed, in-the-money stock options. The complaint alleges that Therrien personally benefited by more than $10 million from his fraudulent conduct.

"All companies must play by the same rules when it comes to accounting for employee compensation and reporting its impact on the company's bottom line," said Linda Chatman Thomsen, Director of the SEC's Enforcement Division. "Executives who violate these rules for their own personal benefit will be held accountable for their actions."

David Bergers, Director of the SEC's Boston Regional Office, added, "Investors have the right to complete and accurate information about the financial condition of public companies and the compensation their executives receive. The Commission will continue to aggressively pursue actions against individuals who engage in fraudulent options practices that mislead investors."

The Commission's civil complaint alleges that Therrien received approximately $5.8 million in undisclosed compensation in November 1999, when he fraudulently backdated his exercise of an option to purchase 225,000 shares of Brooks stock. According to the complaint, after learning that his option had expired unexercised in August 1999, Therrien signed false documents indicating that he had actually exercised his option before its expiration. As a result, the company issued Therrien a new in-the-money option at the original price, which he immediately exercised to purchase company stock at a fraction of the market price when the option was re-issued.

The Commission's civil complaint further alleges that, on at least four occasions from 1999 through 2001, Therrien approved the issuance to company executives and employees of stock options that were backdated to earlier dates on which the stock's market price was lower. Through backdating, options that were in-the-money (with exercise prices below the market price) on the date they were actually granted were disguised as at-the-money options (with exercise prices at the market prices) purportedly granted on an earlier date. As a result of these instances of option backdating, the complaint alleges, Therrien received another $4.6 million in undisclosed benefits. The complaint alleges that as a result of Therrien's misconduct, he benefited by a total of at least $10.4 million and Brooks overstated income and understated employee compensation expenses by at least $54 million in its financial statements during the period from 1999 through 2005.

The complaint alleges that by his conduct Therrien violated the general antifraud provisions of the federal securities laws and provisions that prohibit misrepresentations to auditors and falsification of records, and that he aided and abetted Brooks in its violations of financial reporting, recordkeeping and internal controls requirements. The Commission's action seeks injunctive relief, a civil penalty, disgorgement and an officer and director bar against Therrien.

In a separate matter, the United States Attorney's Office for the District of Massachusetts today announced a criminal indictment charging Therrien with tax evasion for his conduct in connection with the November 1999 option transaction.

SEC Charges Two Texas Swindlers In Penny Stock Spam Scam Involving Computer Botnets

The Securities and Exchange Commission has filed securities fraud charges against two Texas individuals in a high-tech scam that hijacked personal computers nationwide to disseminate millions of spam emails and cheat investors out of more than $4.6 million. The scheme involved the use of so-called computer "botnets" or "proxy bot networks," which are networks comprised of personal computers that, unbeknownst to their owners, are infected with malicious viruses that forward spam or viruses to other computers on the Internet. The scheme began to unravel, however, when a Commission enforcement attorney received one of the spam emails at work.

The Commission alleges that Darrel Uselton and his uncle, Jack Uselton, both recidivist securities law violators, illegally profited during a 20-month "scalping" scam by obtaining shares from at least 13 penny stock companies and selling those shares into an artificially active market they created through manipulative trading, spam email campaigns, direct mailers, and Internet-based promotional activities. Scalping refers to recommending that others purchase a security while secretly selling the same security in the market.

In related enforcement actions, the Attorney General's Office for Texas and the Harris County District Attorney's Office indicted the Useltons for engaging in organized criminal activity and money laundering. The Texas criminal authorities also have seized more than $4.2 million from bank accounts associated with the Useltons.

"This latest step in the Commission's anti-spam initiative is intended to protect investors from fraud artists who would treat the investing public as their personal ATM machines," said SEC Chairman Christopher Cox. "The use of bots to spread investment spam at exponentially higher rates is making this type of fraud an even more virulent threat to ordinary investors. Not only are victims getting hit with get-rich-quick spam, but by turning the victims' computers into zombies, these fraudsters are sending out still more spam to others. Given estimates that up to one-quarter of all personal computers connected to the Internet are part of a botnet, and the thriving market in selling lists of compromised computers to hackers and spammers, the SEC is taking this very seriously. We remain aggressively committed to tracking down anyone attempting to use bots to prey on investors with false or misleading spam about securities."

Linda Chatman Thomsen, SEC Director of Enforcement, said, "The scheme executed by the Useltons reflects a widespread contempt for investors and the marketplace. We will track down the swindlers engaged in these fraudulent schemes and hold them accountable."

The Commission's complaint, filed in U.S. District Court in Houston, alleges that the Useltons orchestrated a series of spam email campaigns using an array of computer botnets to anonymously flood the inboxes of American investors with millions of spam emails touting near-worthless penny stocks with baseless price projections and other unfounded claims. Each campaign, which featured a single company, lasted anywhere from several days to several weeks.

The Commission alleges that between May 2005 and December 2006, the Useltons obtained more than $4.6 million through their fraudulent scheme. According to the complaint, the Useltons and the companies they controlled typically received unrestricted shares from penny stock companies for little or no money, in return for purported financing or promotional activities.

The Commission's complaint alleges that the Useltons violated the antifraud provisions of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The Commission seeks permanent injunctions, disgorgement with prejudgment interest, and civil penalties against each of the individual defendants, as well as penny stock bars against the Useltons.

Darrel Uselton was disciplined by the National Association of Securities Dealers (NASD) in 2004 and 2005. Jack Uselton was permanently enjoined by the Commission from violating the anti-fraud provision in a 2002 settled action.

The company stocks that were the subject of the Useltons’ spam campaign, according to the SEC’s complaint, included Oretech, Inc.; Intelligent Sports, Inc.; Advanced Powerline Technologies; Notch Novelty Corporation; Avondale Resources Corporation; Spooz, Inc.; ESPRE Solutions, Inc.; Grifco International, Inc.; Leatt Corporation; Adrenaline Nation Entertainment, Inc.; Equipment and Systems Engineering, Inc.; Gulf Petroleum Exchange, Inc. (currently Software Effective Solutions Corp.); and Wentworth Energy, Inc.

The SEC in March 2007 suspended trading in the securities of three of the companies (Advanced Powerline Technologies, Leatt Corporation, and Software Effective Solutions Corp.) as part of its anti-spam initiative. The SEC revoked the registration of the securities of Oretech, Inc. in December 2005.

The Commission acknowledges the assistance of the Attorney General's offices for New York and Texas, The Harris County (Houston, Texas) District Attorney's Office, the Federal Bureau of Investigation, the Texas State Securities Board, the State of Oklahoma Department of Securities, the National Association of Securities Dealers and the National Cyber-Forensics and Training Alliance.

The Commission's investigation is continuing.

SEC Announces $37 Million Fair Fund Distribution to Mutual Fund Investors Injured by Columbia Market Timing Fraud

The Securities and Exchange Commission today announced a $37 million Fair Fund distribution to more than 300,000 investors who were harmed by fraudulent mutual fund market timing in the Columbia Funds between 1998 and 2003.

The distribution is the first in a series of disbursements from the Fair Fund that will distribute a total of approximately $140 million to more than 600,000 affected Columbia Funds account holders. The Fair Fund resulted from a Commission enforcement action charging unlawful conduct by Columbia Management Advisors, Inc. (the adviser to the Columbia Funds) and by Columbia Funds Distributor, Inc. (the Fund's underwriter and distributor) by entering or allowing arrangements for undisclosed market timing in the Funds.

"The Commission has now returned more than $1.8 billion to injured investors through Fair Fund distributions in multiple cases," said Linda Chatman Thomsen, Director of the Division of Enforcement. "This first distribution from the Columbia Fair Fund marks another significant step in our continuing efforts to distribute fair funds to mutual fund investors."

"We are very pleased to begin this distribution to Columbia Funds investors who were injured by market timing," said David Bergers, Director of the Commission's Boston Regional Office, which handled the Columbia matter. "The Columbia Fair Fund allows us to use financial penalties and disgorgement from wrongdoers to return money to harmed investors."

In 2005, the Commission brought and settled public administrative and cease-and-desist proceedings against Columbia Management Advisors and Columbia Funds Distributor, which consented to a Commission Order charging anti-fraud violations without admitting or denying the Commission's findings. The Commission ordered the Columbia respondents to jointly pay $70 million in disgorgement and $70 million in penalties for distribution through the Fair Fund.

The Commission anticipates that approximately four additional distributions from the Fair Fund will be made to Columbia Funds account holders to complete the distribution process.

Investors can obtain additional information about the distribution process, including a copy of the Distribution Plan, by visiting http://www.columbiafairfund.com or by calling the Administrator of the Distribution Plan at (800) 410-5361.

SEC Sues London-Based Hedge Fund Adviser GLG Partners, L.P. for Illegal Short Selling in Connection with Public Offerings

The Securities and Exchange Commission today announced settled enforcement actions against London-based hedge fund adviser GLG Partners, L.P. for illegal short selling in connection with 14 public offerings.

During a two-year period, GLG made more than $2.2 million in illegal profits in four of its managed hedge funds by committing multiple violations of Rule 105 of Regulation M of the Securities Exchange Act of 1934. Rule 105, designed to prevent manipulative short selling, prohibits covering certain short sales with securities obtained in a public offering. GLG agreed to a cease-and-desist order and payment of more than $3.2 million in disgorgement, prejudgment interest, and penalties. In accepting GLG’s settlement offer, the SEC considered remedial acts undertaken by GLG, and GLG’s cooperation in the SEC’s investigation.

“With this action against GLG, the SEC reaffirms its commitment to protecting investors by upholding the integrity of the public offering process,” said Linda Chatman Thomsen, Director of the SEC’s Division of Enforcement.

Antonia Chion, Associate Director of the SEC’s Division of Enforcement, stated, “Foreign-based hedge funds that trade on the U.S. markets cannot turn a blind eye to compliance with the U.S. federal securities laws.”

Without admitting or denying the findings, GLG consented to the SEC order that finds, from July 2003 through May 2005, GLG violated Rule 105 on 16 occasions in 14 different public offerings in the following funds: GLG Market Neutral Fund; GLG North American Opportunity Fund; GLG Technology Fund; and GLG European Long Short Fund. At the time, GLG did not have any policies, procedures or training on Rule 105.

GLG’s payment includes disgorgement of $2,214,180 and prejudgment interest of $489,455.94. GLG also will pay a $500,000 civil penalty. As part of the settlement, GLG has agreed to adopt and implement policies and procedures focused on compliance with Rule 105; provide training on Rule 105 to employees, including compliance and legal personnel; and designate a senior-level employee as responsible for overseeing GLG’s compliance with Rule 105.

The SEC thanks the Financial Services Authority in the United Kingdom for its assistance in this matter.

SEC Adds Software Tool for Investors Seeking Information on Companies’ Activities in Countries Known to Sponsor Terrorism

In the latest of a series of steps to use the Internet and interactive computer technology to make public company disclosures more accessible to investors, Securities and Exchange Commission Chairman Christopher Cox today announced that the SEC has added to its Web site a software tool that permits investors to obtain information directly from company disclosure documents about their business interests in countries the U.S. Secretary of State has designated “State Sponsors of Terrorism.”

The information comes from the companies’ most recent annual reports as filed with the SEC.

Chairman Cox said, “No investor should ever have to wonder whether his or her investments or retirement savings are indirectly subsidizing a terrorist haven or genocidal state. The law already requires companies to report on any material activities in a country the Secretary of State has formally designated a State Sponsor of Terrorism. Our role is to make that information readily accessible to the investing public. Making it easier to find significant information such as this by tapping the power of technology is central to the SEC’s mission.”

Five countries are currently on the U.S. State Department list: Cuba, Iran, North Korea, Sudan, and Syria. (In addition to its support for terrorism, the Sudanese government has also been widely recognized as complicit in genocidal activities in Sudan’s Darfur region.)

The new software tool can be accessed on the Investor Information section of the SEC’s home page. Clicking the tab for “State Sponsors of Terrorism” will bring up a menu of each of the countries on the State Sponsors of Terrorism list. Clicking on any of those countries will bring up a menu of the companies whose 2006 annual reports disclose business activities in that country. Clicking on the name of a company will, in turn, bring up the pertinent portions of that company’s annual report.

All of the disclosures are linked directly to the full text of the company’s annual report to insure proper context. The existence of a disclosure by a company concerning activities in one of the listed countries does not, in itself, mean that the company directly or indirectly supports terrorism or is otherwise engaged in any improper activity. The information will be continuously updated to reflect SEC filings as they are received, as well as any changes to the Department of State’s list.

In addition to this initiative, the SEC is complying with a provision in the recently enacted supplemental Appropriations Act requiring that the agency coordinate with the Department of the Treasury on the preparation of a report containing the names of companies which either directly, or through a parent or subsidiary, conduct significant business in Sudan relating to natural resource extraction (P.L. 110-28, The U.S. Troop Readiness, Veterans’ Care, Katrina Recovery, and Iraq Accountability Appropriations Act, 2007).