SEC News Digest

ENFORCEMENT PROCEEDINGS

In the Matter of Mark R. Hamlin

On June 26, the Commission issued an Order Instituting Administrative Proceedings Pursuant to Section 203(f) of the Investment Advisers Act of 1940, Making Findings, and Imposing Remedial Sanctions (Order) against Mark R. Hamlin (Hamlin). The Order finds that on May 29, 2009, a final judgment was entered by consent against Hamlin permanently enjoining him from future violations of Sections 5(a), 5(c) and 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 Sections 206(1) and 206(2) of the Investment Advisers Act of 1940 in the civil action entitled SEC v. Mark R. Hamlin, et al., Civil Action Number 1:09-cv-483, in the United States District Court for the Western District of Michigan. The Order finds that the Commission's complaint alleged that from approximately April 2005 through June 2008, Hamlin offered and sold securities to at least 90 investors and raised approximately $2 million. The Order finds that during that time, Hamlin acted as an unregistered investment adviser in connection with these activities. The Order further finds that the Commission's complaint alleged, among other things, that Hamlin represented to investors that he was a day trader and that he would invest their funds, along with other investors' funds, in the stock market, and that he would send the investors weekly reports of his trading and their profits or losses. According to the Order, the complaint also alleged that in the weekly trading reports, Hamlin represented that the investors earned profits in all but seven weeks of trading. The Order further finds that the complaint alleged that, contrary to his representations, Hamlin, among other things, invested only $1,248,370 of the approximately $2 million that he received from the investors. Moreover, the Order finds that the complaint alleged that Hamlin subsequently transferred approximately $627,000 from his and one of his company's brokerage accounts into his bank accounts and used this money, along with the $759,000 in investor funds that he never invested, to meet $755,000 in investor withdrawal requests and to pay $668,000 in personal expenses. According to the Order, the complaint also alleged that from April 2005 through June 2008, Hamlin's trading resulted in losses of approximately $644,862. In addition, the Order finds that the complaint alleged that Hamlin's trading was profitable during only nine of the 39 months of the offering, and generated a total of only $22,150 in profit.

Based on the above, the Order bars Hamlin from association with any investment adviser. Hamlin consented to the issuance of the Order without admitting or denying the findings in the Commission's Order. (Rel. IA-2896; File No. 3-13530)

In the Matter of John M. Donnelly

On June 29, the Commission issued an Order Instituting Administrative Proceedings Pursuant to Section 203(f) of the Investment Advisers Act, Making Findings, and Imposing Remedial Sanctions (Order) against John M. Donnelly, 52, of Crozet, Virginia. The Order finds that Donnelly was the president and sole owner of unregistered investment advisers Tower Analysis, Inc., Nasco Tang Corp., and Nadia Capital Corp. It also finds that on June 5, 2009, a judgment was entered by consent against Donnelly permanently enjoining him from future violations 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 in the civil action entitled Securities and Exchange Commission v. John M. Donnelly, et al., Civil Action Number 3:09-CV-00015, in the United States District Court for the Western District of Virginia. The judgment orders Donnelly to pay disgorgement of ill-gotten gains, prejudgment interest thereon, and applicable civil penalties to be determined by the court upon motion of the Commission. On May 11, 2009, Donnelly pled guilty to a criminal information charging him with, among other violations, securities fraud in violation of Section 10(b) of the Exchange Act and Rule 10b-5, before the United States District Court for the Western District of Virginia, in United States v. John M. Donnelly, Crim. Information No. 3:09CR00015. Donnelly is scheduled to be sentenced on September 14, 2009.

The Commission's complaint alleged that from 1998 to March 2009, Donnelly engaged in a Ponzi scheme to defraud investors by paying false returns to certain investors out of principal obtained from other investors. Donnelly orchestrated the scheme through entities he controlled, including Tower Analysis, Nasco Tang, and Nadia Capital.

Based on the above, the Order bars Donnelly from association with any investment adviser. Donnelly consented to the issuance of the Order without admitting or denying any of the findings except those relating to the Commission's jurisdiction and the entry of the judgment. (Rel. IA-2897; File No. 3-13531)

Commission Settles with Najy N. Nasser, Headstart Advisers Limited and Headstart Fund Ltd. in Connection with Deceptive Market Timing and Late Trading Scheme

The Commission announced today that, on June 23 and 26, 2009, the United States District Court for the Southern District of New York entered final judgments by consent against Najy N. Nasser, Headstart Advisers Limited (HAL) and Headstart Fund Ltd. in a mutual fund late trading and deceptive market timing civil injunctive action. The final judgments enjoin Nasser and HAL from future violations of the antifraud provisions of the federal securities laws and order them to pay civil monetary penalties of $600,000 and $200,000, respectively. In addition, the final judgment orders the relief defendant, Headstart Fund, to pay disgorgement of $17 million.

The Commission filed its Complaint in this matter on April 10, 2008. The Commission's Complaint alleged that from approximately September 1998 through September 2003, the Headstart Fund, a hedge fund incorporated in the Bahamas, acting through its United Kingdom investment adviser, HAL, engaged in fraudulent late trading and deceptive market timing of U.S. mutual funds through accounts at U.S. broker-dealers. Nasser, HAL's Chief Investment Adviser, provided instructions to, or otherwise communicated with, personnel at U.S. broker-dealers to direct Headstart Fund's late trading and deceptive market timing scheme.

Without admitting or denying the allegations in the Commission's complaint, Nasser and HAL consented to judgments entered by the Court that permanently enjoin them from future violations 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. The judgments orders Nasser and HAL to pay civil monetary penalties of $600,000 and $200,000, respectively. Finally, in late 2003, the Headstart Fund distributed the substantial part of its assets to its investors. Without admitting or denying the allegations in the Commission's complaint, the Headstart Fund has now consented to a judgment that orders it to pay $17 million in disgorgement.

For further information, please see Litigation Release Number 20524 (April 10, 2008). [SEC v. Headstart Advisers Limited, et al., 08 CV 3484 (S.D.N.Y.)] (LR-21108)

SELF-REGULATORY ORGANIZATIONS

Proposed Rule Change

The Commission has published notice of a proposed rule change (SR-FINRA-2009-041) filed by the Financial Industry Regulatory Authority to amend the Code of Arbitration Procedure for Customer Disputes and the Code of Arbitration Procedure for Industry Disputes to amend the definition of "associated person," and to streamline and clarify case administration procedures. Publication is expected in the Federal Register during the week of June 27. (Rel. 34-60159)

Immediate Effectiveness of Proposed Rule Changes

A proposed rule change filed by the Depository Trust Company (SR-DTC-2009-12) to allow participants to submit a request to have their Voluntary Participants Fund Deposit credited to their settlement account on the next business day following the request has become immediately 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 June 27. (Rel. 34-60173)

A proposed rule change (SR-NYSE-2009-61) filed by the New York Stock Exchange relating to the Daily Program Trading Report 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 June 27. (Rel. 34-60179)

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