SEC News Digest

COMMISSION ANNOUNCEMENTS

Closed Meeting - Thursday, October 16, 2008 - 2:00 p.m.

The subject matter of the closed meeting scheduled for Thursday, October 16, will be: formal orders of investigation; institution and settlement of injunctive actions; institution and settlement of administrative proceedings of an enforcement nature; adjudicatory matters; and other matters relating to enforcement proceedings.

At times, changes in Commission priorities require alterations in the scheduling of meeting items. For further information and to ascertain what, if any, matters have been added, deleted or postponed, please contact: The Office of the Secretary at (202) 551-5400.

ENFORCEMENT PROCEEDINGS

Commission Revokes Registration of Securities of Quantum Health Resources, Inc. for Failure to Make Required Periodic Filings

On October 9, the Commission revoked the registration of each class of registered securities of Quantum Health Resources Inc. (Quantum) for failure to make required periodic filings with the Commission.

Without admitting or denying the findings in the Order, except as to jurisdiction, which it admitted, Quantum consented to the entry of an Order Making Findings and Revoking Registration of Securities Pursuant to Section 12(j) of the Securities Exchange Act of 1934 as to Quantum finding that it had failed to comply with Section 13(a) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 13a-1 and 13a-13 thereunder and revoking the registration of each class of Quantum's securities pursuant to Section 12(j) of the Exchange Act. This order settled the charges brought against Quantum Health Resources, Inc. In the Matter of Quality Dino Entertainment, Ltd., et al., Administrative Proceeding File No. 3-13219.

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

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

For further information see Order Instituting Administrative Proceedings and Notice of Hearing Pursuant to Section 12(j) of the Securities Exchange Act of 1934, In the Matter of Quality Dino Entertainment, Ltd., et al., Administrative Proceeding File No. 3-13219, Exchange Act Release No. 58587 Sept. 18, 2008. (Rel. 34-58759; File No. 3-13219)

Commission Revokes Registration of Securities of Cadema Corp.'s for Failure to Make Required Periodic Filings

On October 9, the Commission revoked the registration of each class of registered securities of Cadema Corp.'s (Cadema) for failure to make required periodic filings with the Commission.

Without admitting or denying the findings in the Order, except as to jurisdiction, which it admitted, Cadema consented to the entry of an Order Making Findings and Revoking Registration of Securities Pursuant to Section 12(j) of the Securities Exchange Act of 1934 as to Cadema Corp.'s finding that it had failed to comply with Section 13(a) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 13a-1 and 13a-13 thereunder and revoking the registration of each class of Cadema's securities pursuant to Section 12(j) of the Exchange Act. This order settled the charges brought against Cadema Corp. In the Matter of Cabot Medical Corp., et al., Administrative Proceeding File No. 3-13198.

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

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

For further information see Order Instituting Administrative Proceedings and Notice of Hearing Pursuant to Section 12(j) of the Securities Exchange Act of 1934, In the Matter of Cabot Medical Corp., et al., Administrative Proceeding File No. 3-13198, Exchange Act Release No. 58552 Sept. 16, 2008. (Rel. 34-58760; File No. 3-13198)

Commission Revokes Registration of Securities of OnCourse Technologies, Inc. for Failure to Make Required Periodic Filings

On October 9, the Commission revoked the registration of each class of registered securities of OnCourse Technologies, Inc. (OnCourse Technologies) for failure to make required periodic filings with the Commission.

Without admitting or denying the findings in the Order, except as to jurisdiction, which it admitted, OnCourse Technologies consented to the entry of an Order Making Findings and Revoking Registration of Securities Pursuant to Section 12(j) of the Securities Exchange Act of 1934 as to OnCourse Technologies, Inc. finding that it had failed to comply with Section 13(a) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 13a-1 and 13a-13 thereunder and revoking the registration of each class of OnCourse Technologies Inc.'s securities pursuant to Section 12(j) of the Exchange Act. This order settled the charges brought against OnCourse Technologies In the Matter of Oil City Petroleum, Inc., et al., Administrative Proceeding File No. 3-13179.

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

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

For further information see Order Instituting Administrative Proceedings and Notice of Hearing Pursuant to Section 12(j) of the Securities Exchange Act of 1934, In the Matter of Oil City Petroleum, Inc., et al., Administrative Proceeding File No. 3-13179, Exchange Act Release No. 58505 Sept. 10, 2008. (Rel. 34-58761; File No. 3-13179)

In the Matter of Axyn Corp.

An Administrative Law Judge has issued an Order Making Findings and Revoking Registrations by Default (Default Order) in Axyn Corp., Administrative Proceeding No. 3-13172. The Order Instituting Proceedings alleged that Respondents Axyn Corp., Boss Media, Inc., Nexstage Corp., Platinum Pearls, Inc., and Quintalinux, Ltd., failed repeatedly to file required annual and quarterly reports while their securities were registered with the Securities and Exchange Commission. The Default Order finds these allegations to be true and revokes the registration of each class of registered securities Axyn Corp., Boss Media, Inc., Nexstage Corp., Platinum Pearls, Inc., and Quintalinux, Ltd., have with the Commission, pursuant to Section 12(j) of the Securities Exchange Act of 1934. (Rel. 34-58762; File No. 3-13172)

SEC Charges Former Duane Reade Executives with Accounting Fraud

The Commission today charged two former senior executives of Duane Reade with fraud for orchestrating multi-million dollar accounting schemes that caused the New York-based drugstore Company to inflate its reported earnings and overstate its net income.

The SEC's complaint, filed in federal court in Manhattan, alleges that the former Duane Reade executives entered into a series of fraudulent transactions designed to boost reported income, and enable the company to meet quarterly and annual earnings guidance. According to the SEC's complaint, the fraudulent transactions were designed by the company's former CEO, Anthony J. Cuti, and primarily implemented by its former Real Estate Administrator and one-time CFO, William J. Tennant.

The SEC's complaint alleges that the earnings inflation scheme lasted from 2000 through 2004, and involved two kinds of transactions: The "Real Estate Concession" transactions and the "Credit and Rebilling" transactions. The Real Estate Concession transactions involved payments to Duane Reade for its agreement to relinquish purportedly valuable leases or other real-estate rights. The complaint alleges that these agreements were in reality a sham and that most transactions involved round-trip payments in which Cuti persuaded counter-parties to make payments to Duane Reade in exchange for his promise to repay them through other fictitious transactions. The complaint further alleges that Tennant prepared the false documentation used to implement the scheme.

In the Credit and Rebilling scheme, Cuti allegedly engineered different round-trip transactions that he designed to produce additional current income. The complaint charges that, at Cuti's direction, Duane Reade vendors issued bogus credits to the company that were booked as a reduction to current expenses, resulting in a corresponding increase to current income. However, Cuti also directed these vendors to rebill Duane Reade for the credited amount in later periods under fictitious invoices. Accordingly, when Duane Reade later paid the vendors for phantom services, the fictitious credits were reversed. To disguise the connection between the invoice payments and the original credits, and to ensure that the payments could be capitalized and amortized, rather than charged against current income, Cuti allegedly had the vendors submit the fictitious invoices for work performed on a construction or maintenance project different from that on which the vendor had issued the credits.

According to the complaint, these schemes together caused Duane Reade to overstate its pre-tax income by a total of approximately $17.5 million. To assure the success of the Real Estate Concession scheme in inflating reported income, Cuti and Tennant are alleged to have intentionally deceived the company's CFO and other members of management. Cuti also allegedly made false statements and omitted material facts in conversations with and written representations to the company's independent auditors as to the true nature of the Real Estate Concession and Credit and Rebilling transactions.

The SEC seeks a final judgment permanently enjoining both defendants from committing future violations of Section 17(a) of the Securities Act of 1933, and from committing future violations of Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (Exchange Act), and Rules 10b-5, 13b2-1, and 13b2-2, and from aiding and abetting future violations of Sections 13(a), 13(b)(2)(A), and 15(d) of the Exchange Act, and Rules 12b-20, 13a-1, 13a-11, 13a-13, 15d-1, 15d-11, and 15d-13; and Cuti from committing future violations of Rules 13a-14 and 15d-14 of the Exchange Act, and from aiding and abetting future violations of Section 13(b)(2)(B); and ordering defendants to pay civil penalties and disgorgement of any ill-gotten gains with prejudgment interest. The Commission also seeks a judgment barring Cuti and Tennant from serving as officers or directors of any public company. [SEC v. Anthony J. Cuti and William J. Tennant, 08 Civ. 8648 (JGK) S.D.N.Y.] (LR-20778; AAE Rel. 2894)

SELF-REGULATORY ORGANIZATIONS

Immediate Effectiveness of Proposed Rule Changes

A proposed rule change filed by the New York Stock Exchange to extend until Jan. 9, 2009, the operation of interim NYSE Rule 128 (Clearly Erroneous Executions for NYSE Equities) (SR-NYSE-2008-99), which permits the Exchange to cancel or adjust clearly erroneous executions if they rise out of the use or operation of any quotation, execution or communication system owned or operated by the Exchange, including those executions that occur in the event of a system disruption or system malfunction, has become immediately effective pursuant to Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of October 13. (Rel. 34-58732)

A proposed rule change filed by the NASDAQ Stock Market regarding fees for access to the Clearly Erroneous functionality of the Nasdaq Regulation Reconnaissance Service (SR-NASDAQ-2008-080) has become effective pursuant to Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of October 13. (Rel. 34-58752)

A proposed rule change (SR-FINRA-2008-048) filed by the Financial Industry Regulatory Authority adopting FINRA Rule 6121 (Trading Halts Due to Extraordinary Market Volatility) has become effective under Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of October 13. (Rel. 34-58753)

A proposed rule change (SR-FINRA-2008-049) filed by the Financial Industry Regulatory Authority relating to a UPC advisory on trading halts in OTC Equity Securities has become effective under Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of October 13. (Rel. 34-58754)

A proposed rule change filed by the Philadelphia Stock Exchange (SR-Phlx-2008-71) relating to deleting unnecessary fees has become effective under Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of October 13. (Rel. 34-58755)

Proposed Rule Change

The Depository Trust Company filed a proposed rule change (SR-DTC-2008-12) under Section 19(b)(1) of the Exchange Act that would allow DTC to increase its liquidity resources to ensure that it has sufficient liquidity to cover the failure of a financial family of affiliated DTC participants. Publication is expected in the Federal Register during the week of October 13. (Rel. 34-58757)

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http://www.sec.gov/news/digest/2008/dig100908.htm