SEC News Digest

COMMISSION ANNOUNCEMENTS

Statement of SEC Division of Trading and Markets

On Friday, Oct. 3, 2008, the President signed the historic Emergency Economic Stabilization Act of 2008 (H.R. 1424), aimed at stemming the credit crisis. Accordingly, the Commission's Emergency Order that prohibits persons from selling short the securities of financial institutions will expire at 11:59 p.m. ET on Wednesday, Oct. 8, 2008. (Press Rel. 2008-238)

ENFORCEMENT PROCEEDINGS

Commission Sustains NASD Disciplinary Action against Michael Frederick Siegel

The Commission has sustained NASD's findings of violation against Michael Frederick Siegel, formerly a general securities representative associated with Rauscher Pierce Refsnes, an NASD member firm. NASD found that Siegel engaged in private securities transactions without providing prior written notice to Rauscher in violation of NASD Conduct Rules 3040 and 2110. NASD also found that Siegel made unsuitable recommendations to two couples in violation of NASD Conduct Rules 2310 and 2110. NASD fined Siegel a total of $30,000, ordered him to serve consecutively two six-month suspensions in all capacities, ordered restitution to the customers at issue in the amount of $400,300, and assessed costs of $7,958.05. The Commission determined that, in view of the seriousness of Siegel's conduct, the sanctions imposed by NASD serve a remedial purpose and are necessary to protect the investing public and, therefore, are neither excessive nor oppressive. (Rel. 34-58737)

Judgment of Permanent Injunction and Other Relief Entered Against Defendant Timothy J. Ward

The Commission announced that on July 16, 2008, the United States District Court for the Middle District of Florida entered a Judgment of Permanent Injunction and Other Relief against Defendant Timothy J. Ward. The Judgment, entered by consent, enjoins Ward from violations of Sections 17(a) of the Securities Act of 1933, Sections 10(b), 15(c)(3) and Rules 10b-5 and 15c3-3 of the Securities Exchange Act of 1934.

The Securities and Exchange Commission announced that on July 16, 2008, the United States District Court for the Middle District of Florida entered a Judgment of Permanent Injunction and Other Relief against Defendant Timothy J. Ward. The Judgment, entered by consent, enjoins Ward from violations of Sections 17(a) of the Securities Act of 1933, Sections 10(b), 15(c)(3) and Rules 10b-5 and 15c3-3 of the Securities Exchange Act of 1934. The Judgment also provides for the imposition of a civil penalty in an amount to be determined by the Court upon the Commission's motion. [SEC v. North American Clearing, Inc., et al., Civil Action No. 06-08-cv-829-Orl-28KRS(M.D. Fla.)] (LR-20769)

Judgments Entered Against Defendants Southwestern Medical Solutions, Inc., Richard R. Powell, Basil J. Meecham and John R. Hedges

The Commission announced that on June 27, 2008, the United States District Court for the Middle District of Florida entered a Final Judgment against Defendant Southwestern Medical Solutions, Inc. The Court also entered Judgments of Permanent Injunction and Other Relief against Defendants Richard R. Powell and Basil J. Meecham on July 24, 2008, and against Defendant John R. Hedges on Aug. 22, 2008. The Judgments, entered by consent, enjoin the Defendants from violations of Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934. Additionally, the Judgments bar Powell, Meecham and Hedges from acting as officers or directors of a public company and permanently bar them from participating in any penny stock offering. The Judgments also provide for the imposition of civil penalties in amounts to be determined by the Court upon the Commission's motion.

The Commission commenced this action by filing its complaint on April 17, 2008, against the Defendants. The complaint alleged that the company through its principals issued several false and misleading press releases claiming that the Food and Drug Administration had approved its Labguard diagnostic testing device, it had received an order for several thousand units of the Labguard device, and it had pending patents and trademarks with the U.S. Patent and Trademark Office. [SEC v. Southwestern Medical Solutions, Inc., et al., Civil Action No. 8:08-cv-00731-T-26TBM (M.D. Fla.)] (LR-20770)

Final Judgment Entered Against Defendant Paul Spreadbury

The Commission announced that on June 17, 2008, the United States District Court for the Southern District of Florida entered a Final Judgment of Disgorgement and Other Relief against Defendant Paul A. Spreadbury. The Final Judgment finds Spreadbury liable for disgorgement in the amount of $83,145.00 representing profits gained as a result of the conduct alleged in the Commission's complaint plus pre-judgment interest of $13,652.00. However, based upon Spreadbury's sworn representations in his Statement of Financial Condition and other documents and information submitted to the Commission, the Court does not order him to pay the disgorgement and prejudgment interest and does not impose a civil penalty. Previously, the Court entered a Judgment of Permanent Injunction and Other Relief against Spreadbury, by consent, which enjoined him from violations of Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934 and from participating in a penny stock offering. [SEC v. Concorde America, Inc., et al., Civil Action No. 05-80128-CIV-ZLOCH (S.D. Fla.)] (LR-20771)

SEC Alleges Norman Hsu and Next Components Defrauded Investors in Multi-Million Dollar Ponzi Scheme

The Commission announced that today it filed a Complaint in the United States District Court for the Central District of California against Next Components, Ltd. and its principal, Norman Hsu alleging that the defendants violated Sections 5 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. Norman Hsu, a former resident of California and New York, is in federal custody awaiting trial on federal criminal charges of investment fraud and wire fraud in connection with the operation of the alleged nationwide Ponzi scheme.

According to the SEC's complaint, filed in the federal district court for the Central District of California, Hsu presented himself as an international businessman with high-level contacts with overseas businesses, particularly in the Chinese apparel and technology industries. The SEC's complaint alleges that from January 2003 through September 2007, Hsu told investors that Next Components would pool their funds to finance bridge loans negotiated by Hsu that would generate investor returns of 14 to 24 percent every 70 to 130 days.

The SEC alleges that Hsu and Next Components instead used new investor funds to pay "returns" to pre-existing investors, and misappropriated the remainder of investor funds to pay sales agent commissions, finance Hsu's luxury living and entertainment expenses, and reimburse investors for political donations solicited by Hsu.

The Complaint alleges that Next Components and Hsu violated Sections 5 and 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder. The Commission seeks permanent injunctions, disgorgement, prejudgment interest, and civil penalties against each defendant.

The Commission acknowledges the assistance of the U.S. Attorney's Office for the Southern District of New York and the Federal Bureau of Investigation. [SEC v. Next Components, Ltd., et al., Case No. SACV 08-1112 DOC (ANx) (C.D. Cal.)] (LR-20772)

SEC v. Jonathan W. Mikula, John B. Craddock, JW&P Consulting, LLC, and Nations Warranty Group, Inc.

The Commission today that, on Oct. 2, 2008, it filed a Complaint and application for emergency relief in the United States District Court for the Northern District of Georgia against Jonathan W. Mikula (Mikula), John B. Craddock (Craddock), JW&P Consulting, LLC (JW&P Consulting), and Nations Warranty Group, Inc. (Nations Warranty) (collectively, the Defendants). The Commission alleges that since approximately January 2008, Mikula, a recidivist securities law violator, and Craddock, acting individually or through Nations Warranty or JW&P Consulting, have used misrepresentations and omissions of material fact to offer and sell approximately $2.8 million of securities issued by Nations Warranty in unregistered transactions to approximately 120 investors.

Nations Warranty is a Marietta, Georgia-based extended automobile warranty broker that is majority-owned and controlled by Craddock and partially owned by Mikula. The Complaint alleges that Mikula, operating through his wholly-owned entity JW&P Consulting, and Craddock used material misrepresentations and omissions of material facts to offer and sell short-term promissory notes issued by Nations Warranty. The notes were sold with terms of either 100 or 220 days, and promised rates of return of 4% or 5% per month, respectively. Among the misrepresentations and omissions, the defendants described Nations Warranty to investors as a profitable company when, in fact, Nations Warranty has incurred a net loss of at least $1.2 million during 2008. Defendants also claimed the Nations Warranty notes were "guaranteed" when, in fact, they were not. Furthermore, Defendants represented that JW&P Consulting had evaluated the risks of investing in Nations Warranty notes and had found the risks acceptable. However, Defendants failed to disclose that JW&P Consulting was nothing more than Mikula himself and that Mikula had been enjoined in a Commission action in July 2007 for operating a Ponzi scheme (See SEC Litigation Release No. 20205).

The Commission alleges that, by their conduct, the Defendants have violated 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 (Exchange Act) and Rule 10b-5 thereunder. The Complaint also alleges that Mikula and JW&P Consulting violated Section 15(a) of the Exchange Act. The Complaint seeks against the Defendants preliminary and permanent injunctive relief, disgorgement of ill-gotten gains plus prejudgment interest, and civil penalties.

On October 2, 2008, the Honorable Beverly B. Martin, United States District Judge for the Northern District of Georgia, granted the Commission's application for emergency relief and entered a temporary restraining order and asset freeze against the Defendants. The Court also appointed, at the Commission's request, a receiver for the estates of Nations Warranty and JW&P Consulting. A hearing on the Commission's application for a preliminary injunction is scheduled for Oct. 9, 2008. The litigation is pending as to all parties. [SEC v. Jonathan W. Mikula, John B. Craddock, JW&P Consulting, LLC, and Nations Warranty Group, Inc., Civil Action No. 1:08-CV-3097-BBN (NDGA)] (LR-20773)

SELF-REGULATORY ORGANIZATIONS

Approval of Proposed Rule Change

The Commission granted approval of a proposed rule change (SR-BSE-2008-42) submitted by the Boston Stock Exchange relating to the appointment of market makers on the Boston Options Exchange Facility. Publication is expected in the Federal Register during the week of October 6. (Rel. 34-58687)

Immediate Effectiveness of Proposed Rule Changes

A proposed rule change filed by the International Securities Exchange (SR-ISE-2008-70) relating to cancellation 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 6. (Rel. 34-58692)

A proposed rule change (SR-NFA-2008-02) filed by the National Futures Association relating to technical amendments to the interpretive notice regarding Compliance Rule 2-9: Enhanced Supervisory Requirements has become effective. Publication is expected in the Federal Register during the week of October 6. (Rel. 34-58709)

A proposed rule change filed by the American Stock Exchange (SR-Amex-2008-73) relating to the Amex Price List after the acquisition of NYSE Euronext 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 6. (Rel. 34-58712)

A proposed rule change filed by the Chicago Board Options Exchange (SR-CBOE-2008-102) to change the permissible exercise price and premium calculations for FLEX Equity Options 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 6. (Rel. 34-58718)

A proposed rule change filed by the Chicago Board Options Exchange (SR-CBOE-2008-103) to permit electronic Indicative FLEX Quotes 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 6. (Rel. 34-58719)

A proposed rule change filed by New York Stock Exchange (SR-NYSE-2008-95) to amend Rule 104.10 to extend the duration of the pilot program applicable to Conditional Transactions as defined in Rule 104.10(6)(i) in all securities to the earlier of December 31, 2008 or the approval of SR-NYSE-2008-46 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 6. (Rel. 34-58722)

A proposed rule change filed by the Philadelphia Stock Exchange (SR-Phlx-2008-70) relating to an order entry port fee 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 6. (Rel. 34-58728)

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