SEC News Digest

COMMISSION ANNOUNCEMENTS

SEC, FINRA Announce 2009 CCOutreach BD Regional Seminars

The Securities and Exchange Commission and the Financial Industry Regulatory Authority (FINRA) today announced the opening of registration for five CCOutreach BD regional seminars in 2009.

These regional seminars are designed to help broker-dealer compliance officers perform their compliance responsibilities. They will be held in Los Angeles on May 13, in Atlanta on June 2, in Denver on June 4, in Chicago on June 8, and in New York on July 22.

Panelists at the CCOutreach BD regional seminars will include local SEC and FINRA staff and CCOs from broker-dealer firms. Each regional seminar will include panel discussions on such topics as the current regulatory environment, enterprise-wide supervision, recordkeeping, and information protection. The regional seminars also will include question-and-answer sessions for CCOs.

"This year's regional seminars will help CCOs address compliance risks in today's environment," said Lori Richards, Director of the SEC's Office of Compliance Inspections and Examinations. "The seminars are a great opportunity to stay up-to-date on current challenges and help CCOs and their firms make sure that compliance programs are robust."

More information about the regional seminars is available on the SEC's Web site at www.sec.gov/info/bdccoutreach.htm and on FINRA's Web site at www.finra.org/bdccoutreach. These regional compliance seminars for broker-dealer compliance personnel are different from the regional seminars provided for investment adviser and investment company compliance personnel. There is no cost to attend the seminars but seating is limited, with priority given to broker-dealer CCOs on a first-come, first-registered basis. (Press Rel. 2009-53)

ENFORCEMENT PROCEEDINGS

In the Matter of HS3 Technologies, Inc.

On March 9, the Commission issued an Order Instituting Cease-and-Desist Proceedings Pursuant to Section 8A of the Securities Act of 1933, Making Findings, and Imposing a Cease-and-Desist Order against HS3 Technologies, Inc. (HS3).

The Order finds that, prior to a November 2005 reverse merger, HS3 was named Zeno, Inc. (Zeno) and ostensibly operated as an exploration-stage mining company, based in Vancouver, British Columbia, Canada. In August 2004, Zeno filed a Form SB-2/A amended registration statement with the Commission on behalf of shareholders seeking to resell restricted shares that they had bought directly from Zeno. In its registration statement, Zeno represented that the sale of shares would occur without the involvement of underwriters, and that Zeno would not receive any proceeds from the sale of these shares. In the November 2005 reverse merger, Zeno merged with a privately-held biotech startup, adopted the startup's business plan, replaced its own management with the startup's management, and changed its name to HS3.

The Order further finds that a stock promotion firm orchestrated the reverse merger as part of an agreement with the biotech startup to take the startup public and raise funds for implementation of its business plan. The stock promotion firm and its associates acted as underwriters for a distribution of shares listed in the Form SB-2/A registration statement by acquiring the majority of the shares listed in the registration statement and selling these shares to a network of investors, transferring $500,000 of the proceeds to HS3, in October 2005. HS3 participated in, and shared in the proceeds of, an unregistered distribution of its shares because the distribution that took place differed materially from the proposed sale of shares that HS3, under its previous name, Zeno, had registered with the Commission. No other registration statements were filed or in effect that applied to the distributed shares, and no exemption from registration applied. HS3 failed to verify whether the distribution of shares and its receipt of proceeds complied with representations made by prior management in the August 2004 Form SB-2/A.

The Order finds that HS3 violated Sections 5(a) and 5(c) of the Securities Act, which prohibit the offer or sale of unregistered securities in interstate commerce unless such securities are offered or sold pursuant to an exemption from registration.

Based on the above, the Order requires HS3 to cease and desist from committing or causing any violations and any future violations of Sections 5(a) and 5(c) of the Securities Act. HS3 consented to the issuance of the Order without admitting or denying the findings. (Rel. 33-9014; File No. 3-13404)

In the Matter of Cancer Detection Corporation, Formerly Known as Xpention Genetics, Inc.

On March 9, the Commission issued an Order Instituting Cease-and-Desist Proceedings Pursuant to Section 8A of the Securities Act of 1933, Making Findings, and Imposing a Cease-and-Desist Order against Cancer Detection Corp. (CDC), formerly known as Xpention Genetics, Inc. (Xpention).

The Order finds that, prior to a February 2005 reverse merger, CDC was named Bayview Corporation (Bayview) and ostensibly operated as an exploration-stage mining company, based in Vancouver, British Columbia, Canada. In March 2004, Bayview filed a Form SB-2/A amended registration statement with the Commission on behalf of shareholders seeking to resell restricted shares that they had bought directly from Bayview. In its registration statement, Bayview represented that the sale of shares would occur without the involvement of underwriters, and that Bayview would not receive any proceeds from the sale of these shares. In the February 2005 reverse merger, Bayview merged with a privately-held biotech startup, adopted the startup's business plan, replaced its own management with the startup's management, and changed its name to Xpention.

The Order further finds that a stock promotion firm orchestrated the reverse merger as part of an agreement with the biotech startup to take the startup public and raise funds for implementation of its business plan. The stock promotion firm and its associates acted as underwriters for a distribution of shares listed in the Form SB-2/A registration statement by acquiring the majority of the shares listed in the registration statement and selling these shares to a network of investors, transferring $400,000 of the proceeds to CDC, in June 2005. CDC participated in, and shared in the proceeds of, an unregistered distribution of its shares because the distribution that took place differed materially from the proposed sale of shares that CDC, under its previous name, Bayview, had registered with the Commission. No other registration statements were filed or in effect that applied to the distributed shares, and no exemption from registration applied. CDC failed to verify whether the distribution of shares and its receipt of proceeds complied with representations made by prior management in the March 2004 Form SB-2/A.

The Order finds that CDC violated Sections 5(a) and 5(c) of the Securities Act, which prohibit the offer or sale of unregistered securities in interstate commerce unless such securities are offered or sold pursuant to an exemption from registration.

Based on the above, the Order requires CDC to cease and desist from committing or causing any violations and any future violations of Sections 5(a) and 5(c) of the Securities Act. CDC consented to the issuance of the Order without admitting or denying the findings. (Rel. 33-9015; File No. 3-13405)

Commission Denies Joseph VanCook's Request for Postponement of Administrative Proceeding

The Commission denied a request by respondent Joseph VanCook to postpone the administrative proceeding against him that is currently pending before the Commission. VanCook is alleged, among other things, to have violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder based on allegations that VanCook engaged in late trading of mutual fund shares on behalf of hedge fund clients. VanCook requested that the Commission stay the proceeding pending the final disposition of an enforcement action being prosecuted by the Commission in federal court against an investment adviser also alleged to have engaged in late trading. VanCook asserted that the case shares factual and analytical similarities to his, and that the pendency of the other matter "places the Commission in at least a temporarily conflicted position in which the Commission cannot rule favorably for VanCook without destroying the Commission's position as party/advocate" in the other matter. VanCook asserted that, therefore, that the Commission's consideration of his case violates due process because "the Commission cannot be unbiased in ruling on VanCook's case."

In denying VanCook's request, the Commission noted that "[c]ourts repeatedly have held that the mere fact that an agency both investigates and adjudicates alleged violations does not demonstrate bias or prejudice." It discussed the application of several court decisions to the issue, including a Supreme Court decision which held that it is "very typical for the members of administrative agencies to receive the results of investigations, to approve the filing of charges or formal complaints instituting enforcement proceedings, and then to participate in the ensuing hearings. This mode of procedure does not violate . . . due process of law." The Commission concluded that "there is no basis for postponing or adjourning the proceedings against VanCook because the combination of investigative, prosecutorial, and adjudicative functions does not, without more, constitute a due process violation." (Rel. 34-59550; IC-28644; File No. 3-12753)

SEC Charges Denver Stock Promotion Firm with Fraud in Back-to-Back Pump-and-Dump Schemes

On March 9, the Commission charged The Regency Group, LLC, a Denver-based stock promotion firm, and two of its principals, Colorado residents Scott F. Gelbard and Aaron S. Lamkin, with pumping up the stock price of two Colorado companies through fraudulent promotions and dumping shares into the resulting, artificially-inflated market, first in 2005, then in early 2006. In all, the complaint charges eight individuals and three entities with violating the federal securities laws through their participation in the schemes and through related conduct in the stocks of biotech startup Xpention Genetics, Inc. (Xpention) (now known as Cancer Detection Corp.) and surveillance startup HS3 Technologies, Inc. (HS3). The complaint alleges that the defendants collectively reaped at least $5.9 million in illegal profits.

In addition to Regency, Gelbard, and Lamkin, the named defendants are Canadian resident Joseph S. Fernando and his Nevada corporation, Wellington Capital Enterprises, Inc.; Regency's third principal owner, Jeffrey S. Koslosky, of Colorado; Texas resident John J. Coutris; Colorado resident Michael J. Coutris; Texas limited partnership J. Coutris Partners, LP; and Ohio residents James J. Coutris and Dimitrios I. Gountis.

The SEC's complaint makes the following allegations:

After agreeing to take their clients Xpention and HS3 public, Regency, Gelbard, Lamkin, and Koslosky acquired control of two shell companies and, in "reverse mergers," combined one with Xpention and the other with HS3. At the same time, Regency, Gelbard, Lamkin, Koslosky, John Coutris, Michael Coutris, and J. Coutris Partners sold Xpention and HS3 stock in unregistered distributions to a network of investors they had recruited. Regency, Gelbard, Lamkin, and Koslosky acted as dealers in these transactions but failed to register as dealers with the Commission, while John Coutris, Michael Coutris, and J. Coutris Partners acted as brokers but failed to register as brokers with the Commission.

Regency, Gelbard, and Lamkin orchestrated the drafting, publication, and dissemination of numerous fraudulent promotions to inflate the share price of each stock and enable themselves and others to sell shares later at a profit. Fernando and Wellington, working with Regency, Gelbard, and Lamkin, arranged for the publication and funding of the fraudulent promotions and also sold shares.

The promotional materials: a) made false claims about Xpention and HS3's businesses, technologies, and prospects; b) contained extravagant price predictions for Xpention and HS3 stock that had no basis in fact; c) misrepresented who had paid for their preparation and distribution; and d) omitted information that the defendants intended to sell shares into the promotions.

Regency, Gelbard, Lamkin, and Koslosky sought to hide their ownership interest in Xpention and HS3 by transferring paper ownership of certain restricted shares to James Coutris and Gountis but retaining a hidden interest. James Coutris participating in this scheme by filing a fraudulent Schedule 13D disclosure form with the Commission falsely stating that he was the sole owner of the restricted Xpention shares and had acquired them in order to control the company. Gountis, who - on paper - once owned fully two-thirds of HS3's outstanding shares, failed to file any required disclosure forms regarding his HS3 stock, as did Regency, Gelbard, Lamkin, and Koslosky.

Through their conduct, Regency, Gelbard, Lamkin, Fernando, and Wellington 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, while James Coutris violated Section 10(b) of the Exchange Act and Rule 10b-5.

Regency, Gelbard, Lamkin, Koslosky, John Coutris, Michael Coutris, and J. Coutris Partners violated Sections 5(a) and 5(c) of the Securities Act, which prohibit interstate offers and sales of securities unless a registration statement is filed or in effect with the Commission. They also violated Section 15(a)(1) of the Exchange Act, which prohibits persons from acting as brokers or dealers without registering with the Commission.

Regency, Gelbard, Lamkin, Koslosky, and Gountis violated Section 13(d) of the Exchange Act and Rules 13d-1 and 13d-2, which require certain disclosures by beneficial owners of more than 5% of a class of securities, and Section 16(a) of the Exchange Act and Rule 16a-3, which require disclosures by beneficial owners of more than 10% of a class of such securities.

In its complaint, the Commission seeks permanent injunctive relief and civil penalties against all of the defendants. Additionally, the Commission seeks disgorgement of all illegal profits, plus prejudgment interest, and penny stock bars against Regency, Gelbard, Lamkin, Koslosky, John Coutris, Michael Coutris, J. Coutris Partners, Fernando, and Wellington. Without admitting or denying the allegations, Gountis has agreed to settle the charges and pay a $20,000 civil penalty. The settlement with Gountis is subject to approval by the court.

In two related administrative proceedings, the Commission issued orders against Cancer Detection Corp. and HS3 requiring them to cease and desist from violating the registration provisions of the federal securities laws. Cancer Detection Corp. and HS3 agreed to settle the proceedings, without admitting or denying the findings in the Commission's orders.

The Commission acknowledges the assistance of the Financial Industry Regulatory Authority, Inc. [SEC v. The Regency Group, LLC; Scott F. Gelbard; Jeffrey S. Koslosky; Aaron S. Lamkin; John J. Coutris; Michael J. Coutris; J. Coutris Partners, LP; Joseph S. Fernando; Wellington Capital Enterprises, Inc.; James J. Coutris; and Dimitrios I. Gountis, Civil Action No. 09-CV-00497 RPM-BNB (D. Colo.)] (LR-20937)

SEC Brings Settled Actions Against Former AstroPower CEO and CFO for their Roles in Financial Fraud

On March 9, the Commission filed a settled complaint in the U.S. District Court for the District of Columbia against Allen Barnett and Thomas Stiner, the former CEO and CFO, respectively, of AstroPower, Inc., a Delaware manufacturer of solar electric power products. AstroPower is no longer an operating company as its common stock was cancelled and its assets liquidated via bankruptcy in 2004. The Commission alleged that Barnett and Stiner made material misstatements, engaged in fraudulent accounting practices, and signed filings made with the Commission that they knew, or were reckless in not knowing, contained materially false and misleading financial statements. According to the Complaint, at the direction of Barnett and Stiner, and in contravention of Generally Accepted Accounting Principles, AstroPower improperly recognized approximately $4 million in revenues from four transactions executed over the course of the second and third quarters of 2002. According to the Complaint, as a result of improperly recognizing revenue from these transactions, AstroPower's net income was overstated by approximately $160,000 or 80% for the second quarter of 2002, and approximately $440,000 or 113% for the third quarter of 2002.

Without admitting or denying the Commission's allegations, Barnett and Stiner consented to the entry of final judgments permanently enjoining them from violations of the antifraud, internal controls, recordkeeping and the Sarbanes-Oxley certification provisions and from aiding and abetting violations of the reporting, internal controls, and recordkeeping provisions of the federal securities laws. Barnett and Stiner also consented to be prohibited from acting as officers or directors of any public company and to pay civil penalties of $65,000 and $40,000, respectively.

Additionally, Stiner, without admitting or denying the Commission's findings, consented to settled administrative proceedings pursuant to Rule 102(e)(3) of the Commission's Rules of Practice suspending him from appearing or practicing before the Commission as an accountant, based on the anticipated entry of an injunction against him. [SEC v. Allen Barnett, et al., Civil Action No. 1:09-cv-00457 (D. D.C.) (EGS)] (LR-20938; AAE Rel. 2946)

SELF-REGULATORY ORGANIZATIONS

Immediate Effectiveness of Proposed Rule Changes

A proposed rule change filed by the NYSE Alternext US (SR-NYSEALTR-2009-23) to permit two trading officials to modify the required bid/ask differentials 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 March 9. (Rel. 34-59517)

A proposed rule change filed by Chicago Board Options Exchange (SR-CBOE-2009-012) relating to extension of the dividend, merger and short stock interest strategies fee cap pilot program until March 1, 2010 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 March 9. (Rel. 34-59524)

A proposed rule change filed by NYSE Arca (SR-NYSEArca-2009-16) amending its schedule of fees and charges applicable to the option strategy executions pilot program 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 March 9. (Rel. 34-59525)

Proposed Rule Change

A proposed rule change has been filed by the Financial Industry Regulatory Authority related to amendments to the Discovery Guide to update the Document Production Lists. Publication is expected in the Federal Register during the week of March 9. (Rel. 34-59534)

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http://www.sec.gov/news/digest/2009/dig031009.htm