SEC News Digest

COMMISSION ANNOUNCEMENTS

Robert Malhotra Named Senior Advisor in SEC Office of the Chief Accountant

The Securities and Exchange Commission announced today that Robert B. Malhotra has been named to serve in the SEC’s Office of the Chief Accountant (OCA) as a senior advisor.  In this capacity, Mr. Malhotra will advise the senior officers in OCA on complex accounting and auditing matters, and will assist in the development of strategic objectives that need to be pursued to support the Commission’s agenda.

Mr. Malhotra has been serving as a Professional Accounting Fellow in OCA.  In this capacity, he has primarily focused on a variety of accounting and reporting matters, including the accounting for consolidations, financial assets, business combinations, and postretirement benefit arrangements.

“I am very pleased that Bob has agreed to take on a senior advisory role,” said James L. Kroeker, the SEC’s Acting Chief Accountant.  “His expertise with issues associated with fair value measurements and off-balance sheet arrangements, along with his judgment in dealing with complex issues, will benefit OCA, the capital markets, and investors.”

Prior to joining the SEC staff, Mr. Malhotra was a senior manager with KPMG LLP, where he worked in the firm’s Department of Professional Practice.  Mr. Malhotra is a graduate of the University of Cincinnati. (Press Rel. 2009-19)

ENFORCEMENT PROCEEDINGS

Jeffrey M. Yonkers, CPA, Reinstated to Appear and Practice Before the Commission as an Independent Accountant

Pursuant to Rule 102(e)(5)(i) of the Commission's Rules of Practice, Jeffrey M. Yonkers, CPA, has applied for and been granted reinstatement of his privilege to appear and practice before the Commission as an independent accountant. Mr. Yonkers, who was denied the privilege of appearing or practicing before the Commission on July 27, 2001, pursuant to a settled proceeding, has represented that he has complied and will continue to comply with the terms of the order that denied him from appearing or practicing before the Commission as an accountant. Mr. Yonkers’ reinstatement is effective immediately. (Rel. 34-59363; AAE Rel. 2931; File No. 3-10354)

Commission Charges Mark T. Turkcan With Fraud

On February 4, the Commission filed a complaint in the United States District Court for the Eastern District of Missouri alleging that Mark T. Turkcan (Turkcan), the former President of First Bank Mortgage (FBM), defrauded investors by engaging in a scheme to misstate the net income of FBM and its parent First Banks, Inc. from at least 1990 through April 2008.

The Commission alleges that Turkcan, a resident of Kirkwood, Missouri, carried out his scheme by secretly obtaining money from third-party brokerage firms through the surreptitious use of repurchase transactions, which are essentially collateralized loans, and improperly disguising the money obtained from those transactions as gains from trading mortgage-backed securities. According to the complaint, Turkcan fabricated trade tickets and confirmations and prepared a handwritten report each month that included fictitious trading gains, which he provided to his staff for entry into FBM’s accounting system. The complaint also alleges that Turkcan created a register that included the fictitious trading gains and provided it to First Banks, Inc.’s outside auditor in connection with its annual audits of First Bank, Inc.’s consolidated financial statements. The Commission further alleges that as a result of Turkcan’s scheme, First Banks, Inc. incurred an obligation of approximately $35 million and materially misstated its net income in filings with the Commission by as much as $5.3 million (or 10.2%) in its annual report for 2007.

The Commission’s complaint charges Turkcan with violations of Section 17(a) of the Securities Act of 1933, Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 10b-5, 13b2-1, and 13b2-2 thereunder, and aiding and abetting violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder, and seeks a permanent injunction, disgorgement, civil penalties, prejudgment interest, and an officer and director bar. [SEC v. Mark T. Turkcan, Civil Action 4:09-cv-00204 (EDMO)] (LR-20882; AAE 2930)

SEC Brings Fraud Charges and Obtains Emergency Relief to Stop Ongoing Prime Bank Scheme Targeting Seniors

The Commission charged Brian V. Prendergast of Castle Rock, Colorado, and his entity Enterprises, LLC, a Colorado limited liability company, with conducting a fraudulent prime bank offering scheme in coordination with Donald R. Smith of Aurora, Colorado, Yuail I. Enwia of Ceres, California, and Worldwide Equity Corporation (WEC), a Nevada corporation. The Commission alleges that Prendergast, who has previously been convicted of criminal securities fraud in Colorado and is currently on court-supervised release, purported to raise $2.5 million from investors, several of whom are senior citizens. On February 4, the Court entered an order granting a temporary restraining order against the defendants, requiring accountings, and freezing the defendants’ assets derived from investor funds obtained in the fraudulent scheme.

SEC Charges Seven Wall Street Professionals and Others With Insider Trading

The Commission announced that it has charged seven individuals involved in an insider trading ring, which generated a combined total of over $11.6 million in illegal profits and losses avoided. Two mergers and acquisitions professionals, Nicos Achilleas Stephanou at UBS Investment Bank, and Ramesh Chakrapani at Blackstone Advisory Services, L.P., tipped five individuals, including Joseph Contorinis, a portfolio manager for a Jefferies Group, Inc. hedge fund, and residents of Greece and Cyprus with material nonpublic information about three impending corporate acquisitions.

According to the SEC’s complaint, the insider trading ring included:

Nicos Achilleas Stephanou, a resident of the United Kingdom, was an Associate Director of Mergers and Acquisitions at UBS Investment Bank;

Ramesh Chakrapani, a resident of the United Kingdom, was a Managing Director in the Corporate and Mergers and Acquisitions group at Blackstone Advisory Services, L.P. and a friend and former colleague of Nicos Stephanou;

Joseph Contorinis, a resident of Florida, was a Managing Director at Jefferies & Company, Inc. and portfolio manager for the Jefferies Paragon Fund, and a friend and former colleague of Nicos Stephanou;

Achilleas Stephanou, a resident of Cyprus, is Nicos Stephanou’s father;

George Paparrizos, a resident of Foster City, California, is a former classmate of Nicos Stephanou;

Konstantinos Paparrizos, a resident of Greece, is George Paparrizos’ father; and

Michael G. Koulouroudis, a resident of Brooklyn, New York, is a close family friend of Nicos Stephanou.

Related criminal charges by the U.S. Attorney’s Office for the Southern District of New York were filed today against Ramesh Chakrapani, Achilleas Stephanou, George Paparrizos, Konstantinos Paparrizos, Michael Koulouroudis and Joseph Contorinis. Simultaneously, criminal charges against Nicos Stephanou were unsealed.

The SEC’s complaint alleges that the illicit trading occurred from at least November 2005 through December 2006 and involved at least the following acquisitions:

Albertson’s Inc. (ABS)

On Monday, Jan. 23, 2006, prior to the opening of trading, ABS issued a press release announcing the acquisition of ABS by a consortium of buyers at $26.29 per share.

Nicos Stephanou had access to material nonpublic information concerning the acquisition of ABS prior to its public release because one of the companies that eventually acquired ABS retained UBS as its financial advisor and Nicos Stephanou was a member of the team at UBS that advised the company on the acquisition.

Nicos Stephanou tipped George Paparrizos, Michael Koulouroudis and Joseph Contorinis with material nonpublic information about the ABS acquisition, all of whom traded on the basis of that information. Nicos Stephanou also either tipped his father, Achilleas Stephanou, or in an effort to evade detection, Stephanou traded ABS securities in his father’s brokerage account. In addition, Nicos Stephanou either tipped Konstantinos Paparrizos or, in an effort to evade detection, George Paparrizos traded ABS securities in his father’s account.

In particular, after receiving the nonpublic information from Nicos Stephanou, Joseph Contorinis caused the Jefferies Paragon Fund to purchase over 2.6 million shares of ABS at a cost of $59 million.

By virtue of their trading in ABS securities, the defendants made total profits and avoided losses of approximately $7.7 million.

ElkCorp. (ELK)

On Dec. 18, 2006, prior to the market open, ELK publicly announced that it had agreed to be acquired by The Carlyle Group for $38.00 per share.

ELK hired UBS as its financial advisor. Through working on the deal himself, through communications with other employees at UBS who advised ELK on the acquisition, and/or by virtue of his access to UBS’ internal files, Nicos Stephanou had access to material nonpublic information regarding ELK’s impending acquisition.

Nicos Stephanou tipped George Paparrizos and Michael Koulouroudis with material nonpublic information about the ELK acquisition. George Paparrizos and Michael Koulouroudis traded on the basis of that information. Nicos Stephanou also either tipped his father, Achilleas Stephanou or, in an effort to evade detection, traded ABS in his father’s brokerage account. In addition, Nicos Stephanou either tipped Konstantinos Paparrizos or, in an effort to avoid detection, George Paparrizos traded ELK securities in his father’s account.

By virtue of this trading in ELK securities, Achilleas Stephanou, George Paparrizos, Konstantinos Paparrizos and Michael Koulouroudis and his family members made total profits of approximately $300,000.

National Health Investors, Inc. (NHI)

On Oct. 10, 2006, NHI publicly announced that its Board of Directors had formed a Special Committee of independent directors, and had retained Blackstone as its financial advisor to evaluate strategic alternatives to enhance shareholder value. NHI also announced that it had received a buyout offer from its CEO offering $30.00 per share in cash, but stated that the offer was inadequate.

Ramesh Chakrapani had access to material nonpublic information concerning a potential acquisition of NHI as a result of his employment at Blackstone. Ramesh Chakrapani was a member of the team at Blackstone that advised NHI on its potential acquisition.

Ramesh Chakrapani tipped Nicos Stephanou with material nonpublic information regarding the potential NHI acquisition, who in turn tipped Michael Koulouroudis with that information. Koulouroudis traded on the basis of this information. Nicos Stephanou also either tipped his father, or in an effort to evade detection, traded NHI in his father’s brokerage account.

By virtue of this trading in NHI securities, Achilleas Stephanou and Michael Koulouroudis and his family members made total profits of $17,000.

Nicos Stephanou, Achilleas Stephanou, George Paparrizos, Konstantinos Paparrizos and Michael Koulouroudis are charged with violating 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. Ramesh Chakrapani and Joseph Contorinis are charged with violating Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. The SEC seeks injunctive relief, disgorgement of illicit profits and losses avoided with prejudgment interest, and civil monetary penalties.

On Jan. 13, 2009, the Commission filed a related complaint against Ramesh Chakrapani alleging, among other things, that Ramesh Chakrapani tipped another friend, also an industry professional, with material nonpublic information about the ABS acquisition he learned as a result of his employment. The friend, identified in the complaint as Tippee 1, then traded in his personal account, was responsible for and/or caused trades on behalf of two proprietary trading accounts affiliated with his employer, and tipped or traded on behalf of his parents. The tippees generated a total of approximately $3.6 million in illegal profits. For further information see SEC v. Chakrapani, 09 CV 325 (S.D.N.Y.).

The Commission acknowledges and appreciates the assistance of the U.S. Attorney’s Office and the Federal Bureau of Investigation in connection with this matter.

The Commission’s investigation is continuing. [SEC v. Nicos Achilleas Stephanou, Ramesh Chakrapani, Achilleas Stephanou, George Paparrizos a/k/a Georgios Paparrizos, Konstantinos Paparrizos, Michael G. Koulouroudis and Joseph Contorinis, Civil Action No. 09 CV 1043 (S.D.N.Y); SEC v. Ramesh Chakrapani, Civil Action No. 09 CV 325 (RJS) (S.D.N.Y.)] (LR-20884)

SEC Finalizes ARS Settlement with Wachovia, Providing Over $7 Billion in Liquidity to Investors

The Securities and Exchange Commission today announced a settlement with Wachovia Securities, LLC that will provide more than $7 billion in liquidity to thousands of customers who invested in auction rate securities (ARS) before the market for those securities collapsed.

The settlement resolves the SEC’s charges that Wachovia, headquartered in St. Louis, misled investors regarding the liquidity risks associated with ARS that it underwrote, marketed and sold.

The SEC’s complaint, filed in the U.S. District Court for the Northern District of Illinois, alleges that Wachovia and A.G. Edwards & Sons, Inc., whose broker-dealer operations were consolidated into Wachovia on Jan. 1, 2008, misrepresented to customers that ARS were safe, highly liquid investments that were comparable to cash or money market instruments. According to the SEC’s complaint, Wachovia reinforced the perception of liquidity by routinely purchasing ARS from A.G. Edwards’ customers between auctions, without telling customers that Wachovia’s willingness to do so depended upon the continued success of the auctions.

The SEC’s complaint alleges that Wachovia became aware of mounting evidence in late 2007 and early 2008 that put the firm on notice that the risk of auction failures had materially increased. Wachovia, nevertheless, continued to market ARS to its customers as highly liquid investments. On Feb. 14, 2008, Wachovia followed the lead of other broker-dealers and decided to stop supporting auctions. Without broker-dealer support, ARS auctions failed and thousands of Wachovia’s customers were left holding billions of dollars in illiquid ARS, without any practical means of redeeming, selling or deriving value from them.

Without admitting or denying the SEC’s allegations, Wachovia agreed to be permanently enjoined from violations of Section 15(c) of the Securities Exchange Act of 1934, the broker-dealer fraud provision, and to comply with a number of undertakings, some of which are set forth below. After Wachovia has completed its obligations under the settlement agreement, the SEC will decide whether to seek a financial penalty.

The settlement, which is subject to court approval, provides, among other things, that:

• Wachovia will offer to buy back ARS from all investors who purchased ARS from Wachovia into accounts maintained at Wachovia on or before Feb. 13, 2008. Wachovia’s buyback has two phases. In the first phase, which ended on Nov. 28, 2008, Wachovia offered to purchase ARS held by natural persons, not-for-profit and religious organizations and for other accounts with account values or household values up to $10 million. As of Nov. 28, it purchased over $6.2 billion of eligible ARS from customers. Second, beginning no later that June 10 and ending no later than June 30, 2009, Wachovia will offer to purchase ARS held by all other investors.
   
• Wachovia will pay customers who sold their ARS below par between Feb. 13, 2008, and Nov. 10, 2008, the difference between par and the sale price of the ARS, plus reasonable interest.
   
• Wachovia will compensate customers who took out loans from Wachovia after Feb. 13, 2008, because of liquidity concerns by reimbursing customers for no less than the negative carry associated with any such loans.
   
• Wachovia will offer to lend its customers the full par value of their ARS, pending the contemplated buyback, with interest rates set so that customers will have no negative carry on their loans.
   
• Further, if eligible customers incurred consequential damages because of the illiquidity of their ARS, they may participate in special Financial Industry Regulatory Authority (FINRA) arbitrations.

Wachovia Capital Markets LLC, an affiliate of Wachovia, has voluntarily agreed to provide identical remedial relief to Wachovia Capital customers who purchased ARS in Wachovia Capital accounts.

The SEC notes the substantial assistance and cooperation from the Missouri Secretary of State, the North American Securities Administrators Association, the Office of the New York Attorney General, and FINRA. [SEC v. Wachovia Securities, LLC, Civil Case No. 09 CV 743 (N.D. Ill.)] (LR-20885)

INVESTMENT COMPANY ACT RELEASES

Macquarie Global Infrastructure Total Return Fund Inc., et al.

An order has been issued on an application filed by Macquarie Global Infrastructure Total Return Fund Inc., et al. under Section 6(c) of the Investment Company Act for an exemption from Section 19(b) of the Act and Rule 19b-1 under the Act. The order permits certain registered closed-end management investment companies to make periodic distributions of long-term capital gains (i) with respect to their common stock as part of a managed distribution plan as frequently as twelve times each year, and (ii) with respect to their preferred stock as frequently as required by the terms of such preferred stock. (Rel. IC-28611 - February 3)

SunAmerica Focused Alpha Growth Fund, Inc., et al.

An order has been issued on an application filed by SunAmerica Focused Alpha Growth Fund, Inc., et al. under Section 6(c) of the Investment Company Act for an exemption from Section 19(b) of the Act and Rule 19b-1 under the Act. The order permits certain registered closed-end management investment companies to make periodic distributions of long-term capital gains (i) with respect to their common stock as part of a managed distribution plan as frequently as twelve times each year, and (ii) with respect to their preferred stock as frequently as required by the terms of such preferred stock. (Rel. IC-28612 - February 3)

SELF-REGULATORY ORGANIZATIONS

Immediate Effectiveness of Proposed Rule Changes

A proposed rule change (SR-Phlx-2009-03) filed by the NASDAQ OMX PHLX to amend Phlx Rule 1092, obvious errors and catastrophic errors has become effective pursuant to Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of February 9. (Rel. 34-59322)

A proposed rule change filed by the New York Stock Exchange (SR-NYSE-2009-10) amending NYSE Rules 116 and 123C to create a single closing print to be reported to the Consolidated Tape for each security has become effective under Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of February 9. (Rel. 34-59345)

A proposed rule change filed by NASDAQ OMX PHLX to eliminate the $3 underlying price requirement for continued listing and listing of additional series (SR-Phlx-2009-07) has become effective pursuant to Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of February 9. (Rel. 34-59346)

A proposed rule change filed by the International Securities Exchange to eliminate the $3 underlying price requirement for continued listing and listing of additional series (SR-ISE-2009-05) has become effective pursuant to Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of February 9. (Rel. 34-59347)

A proposed rule change filed by NYSE Alternext US to eliminate the $3 underlying price requirement for continued listing and listing of additional series (SR-NYSEALTR-2009-08) has become effective pursuant to Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of February 9. (Rel. 34-59348)

A proposed rule change (SR-CBOE-2009-004) filed by the Chicago Board Options Exchange relating to the Options Regulatory Fee has become effective pursuant to Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of February 9. (Rel. 34-59355)

Approval of Proposed Rule Change

The Commission approved a proposed rule change (SR-NYSE-2008-101) submitted under Rule 19b-4 of the Securities Exchange Act of 1934 by the New York Stock Exchange to establish the Risk Management Gateway Service. Publication is expected in the Federal Register during the week of February 9. (Rel. 34-59354)

SECURITIES ACT REGISTRATIONS

• Latest Securities Act registrations (TXT)

RECENT 8K FILINGS

• Latest 8-K filings (TXT)

http://www.sec.gov/news/digest/2009/dig020509.htm