SEC NEWS DIGEST Issue 2006-18 January 27, 2006 COMMISSION ANNOUNCEMENTS DIVISION OF MARKET REGULATION PUBLISHES RESPONSES TO FREQUENTLY ASKED QUESTIONS CONCERNING RULE 611 AND RULE 610 OF REGULATION NMS On January 27, the staff of the Division of Market Regulation today published responses to frequently asked questions concerning Rule 611 and Rule 610 of Regulation NMS. Regulation NMS was adopted by the Commission on April 6, 2005, and is a series of initiatives designed to modernize and strengthen the national market system for equity securities. Rule 611 provides intermarket price priority for displayed and accessible quotations while Rule 610 addresses access to markets. The responses jointly address Rule 611 and Rule 610 because the price priority and access issues arising under the two rules often are intertwined. Responses to these frequently asked questions were prepared by and represent the views of the staff. They are not rules, regulations, or statements of the Commission. Further, the Commission has neither approved nor disapproved of these interpretive answers. The responses are available on the Commission's web site at www.sec.gov/spotlight/regnms.htm. (Press Rel. 2006-12) ENFORCEMENT PROCEEDINGS REVOCATION OF REGISTRATION OF SECURITIES OF METROPOLITAN MORTGAGE & SECURITIES CO., INC. On January 27, the Commission revoked the registration of the securities of Metropolitan Mortgage & Securities Co., Inc. of Spokane, Wash., registered with the Commission pursuant to Section 12 of the Exchange Act. The revocation becomes effective as of 9:30 a.m. on January 27, 2006, pursuant to Section 12(j) of the Securities Exchange Act of 1934. In its Order revoking the registration of the preferred stock of Metropolitan Mortgage, the Commission found the following: Metropolitan Mortgage failed to comply with Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder by failing to file timely its annual reports on Form 10-K since December 2002 and its quarterly reports on Form 10-Q for any fiscal period subsequent to its fiscal quarter ending June 30, 2003. Without admitting or denying the Commission's findings, Metropolitan Mortgage consented to an order revoking the registration of each class of its securities. The Commission cautions broker dealers, shareholders, and prospective purchasers that they should carefully consider the foregoing information along with all other currently available information and any information subsequently issued by the company. Further, brokers and dealers should be alert to the fact that, 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 pursuant to the preceding sentence. (Rel. 34-53183; File No. 3-12163) REVOCATION OF REGISTRATION OF SECURITIES OF SUMMIT SECURITIES, INC. On January 27, the Commission revoked the registration of the securities of Summit Securities, Inc. of Spokane, Wash., registered with the Commission pursuant to Section 12 of the Exchange Act. The revocation becomes effective as of 9:30 a.m. on January 27, 2006, pursuant to Section 12(j) of the Securities Exchange Act of 1934. In its Order revoking the registration of the preferred stock of Summit Securities, the Commission found the following: Summit Securities failed to comply with Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder by failing to file timely its annual reports on Form 10-K since December 2002 and its quarterly reports on Form 10-Q for any fiscal period subsequent to its fiscal quarter ending June 30, 2003. Without admitting or denying the Commission's findings, Summit Securities consented to an order revoking the registration of each class of its securities. The Commission cautions broker dealers, shareholders, and prospective purchasers that they should carefully consider the foregoing information along with all other currently available information and any information subsequently issued by the company. Further, brokers and dealers should be alert to the fact that, 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 pursuant to the preceding sentence. (Rel. 34-53184; File No. 3-12164) COURT ENTERS FINAL JUDGMENT AGAINST ANTHONY POMPONIO On Jan. 11, 2006, the U.S. District Court for the Southern District of New York entered a final judgment against Anthony P. Pomponio, the former Chief Executive Officer of Pomponio Industries, an industrial wheel manufacturing company, based upon charges of insider trading alleged in the Commission's complaint filed on Dec. 21, 1999. The Court found that Kathryn B. Gannon, a.k.a. Marilyn Starr, disclosed information to Pomponio, which Gannon knew had been misappropriated from Keefe, Bruyette & Woods, Inc., (Keefe Bruyette) by James J. McDermott, while McDermott was Chairman and Chief Executive Officer of Keefe Bruyette. The Court also found that Pomponio was aware that this information had been misappropriated by McDermott from Keefe Bruyette and its clients. The court further found that Pomponio, while in possession of this confidential, material and non-public information, purchased and sold securities of companies that were the targets of potential merger or acquisition transactions. The court concluded that Pomponio violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder with respect to his trading in the securities of Barnett Banks, Inc., First Commerce Corporation, and First Commercial Corporation. The final judgment permanently enjoined Pomponio from violating the antifraud provisions contained within Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder. The Court also ordered Pomponio to pay $95,306.88, comprising full disgorgement of Pomponio's profits of $35,048 and $25,210.88 in prejudgment interest, and a one- time civil penalty of $35,048. On Dec. 14, 2000, Pomponio was convicted on one count of criminal conspiracy, three counts of securities fraud, and one count of perjury in a parallel criminal case relating to these same acts of insider trading. He was sentenced to 21 months of incarceration, followed by two years of supervised release, and ordered to pay a criminal monetary penalty of $5000. McDermott and Gannon previously consented to a final judgment which was entered on May 23, 2005, without admitting or denying the allegations of insider trading in the Commission's complaint. [SEC v. James J. McDermott, Kathryn B. Gannon, and Anthony P. Pomponio, Civil Action No. 99 Civ. 12256, MBM, S.D.N.Y.] (LR-19544) TERESA FERNANDEZ SENTENCED TO 41 MONTHS IN PRISON FOR MAKING FALSE STATEMENTS TO THE SEC AND PROBATION OFFICES On January 25, United States District Judge Denny Chin sentenced Teresa V. Fernandez, 57, of Tenafly, N.J., to forty-one months incarceration for making false statements about her financial condition to the Securities and Exchange Commission and to two United States Probation Offices. Fernandez made the false statements to avoid more substantial monetary sanctions in connection with the settlement of a pending Commission civil enforcement action and to avoid payments under a restitution order imposed on her in a parallel criminal proceeding. Following her incarceration, Fernandez will be placed on supervisory release for a period of two years. On May 19, 2005, Fernandez pleaded guilty to a three-count indictment for making false statements to a government official, in violation of Title 18, United States Code, Section 1001, in US v. Teresa V. Fernandez, 05 Cr. 115 (S.D.N.Y.) (DC) (the "false statements case"). By entering the guilty plea, Fernandez admitted that she underreported her assets to the Commission and the Probation Offices. Fernandez's false statements to the Commission were made in connection with the 2001 settlement of the Commission's enforcement action against her, SEC v. Fernandez, 96 Civ. 8702 (S.D.N.Y)(JES), arising out of her fraud upon investment advisory clients. Under the terms of that settlement, Fernandez was held liable for disgorgement of $2,844,883, representing her ill-gotten gains from the fraud, but was required to pay only approximately $1,000,000. Payment of additional disgorgement and prejudgment interest was waived by the Commission and no civil penalties were imposed on Fernandez, based on Fernandez's claimed inability to pay, and in particular on representations she made in a declaration of financial condition she submitted to the Commission. As alleged in Count One of the indictment, Fernandez stated in her declaration of financial condition that since the third quarter of 1983 she had not had any interest in, or control of, accounts at foreign financial institutions, other than several identified accounts, which held de minimis amounts, when in fact, at the time she made those statements - on or about July 31, 2000 - she had an interest in and control of an offshore trust account. At the time Fernandez signed the declaration, the trust held assets valued at approximately $1.8 million. Counts Two and Three of the indictment charged Fernandez with concealing the trust account from the United States Office of Probation for the Southern District of New York, which was investigating her ability to pay restitution in the parallel criminal case, U.S. v. Teresa V. Fernandez, 96 Cr. 678 (S.D.N.Y.)(DC), and concealing that account and two others from the United States Office of Probation for the District of New Jersey, which supervised her probation in that case. See also LR-5159; LR-16608; LR-16800; LR- 19055; IA-1650. The United States Attorney's Office for the Southern District of New York prosecuted the false statements case, as well as the parallel criminal case. Fernandez remains subject to the restitution order entered in the latter case. [SEC v. Teresa V. Fernandez, 96 Civ. 8702, S.D.N.Y., JES] (LR-19545) INVESTMENT COMPANY ACT RELEASE HUTCHINSON TECHNOLOGY INCORPORATED A notice has been issued giving interested persons until Feb. 21, 2006, to request a hearing on an application filed by Hutchinson Technology Incorporated for an order declaring applicant to be primarily engaged in a business other than that of investing, reinvesting, owning, holding or trading in securities. (Rel. IC-27215 - January 25) SELF REGULATORY ORGANIZATIONS IMMEDIATE EFFECTIVENESS OF PROPOSED RULE CHANGES The Philadelphia Stock Exchange has filed a proposed rule change (SR- Phlx-2005-90) relating to a session fee increase for the Regulatory Element of the Continuing Education Program. The proposed rule change has become effective on filing under Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication of the notice is expected in the Federal Register during the week of January 30. (Rel. 34-53180) The Chicago Stock Exchange has filed a proposed rule change (SR-CHX- 2005-40) relating to a session fee increase for the Regulatory Element of the Continuing Education Program. The proposed rule change has become effective on filing under Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication of the notice is expected in the Federal Register during the week of January 30. (Rel. 34-53181) APPROVAL OF PROPOSED RULE CHANGES The Commission approved a proposed rule change (SR-NYSE-2005-36) filed by the New York Stock Exchange regarding a proposal to amend Rule 445. Amendment No. 1 to the proposed rule change has been filed by the New York Stock Exchange, Inc. and the Commission has granted accelerated approval to Amendment No. 1. The proposed rule change concerns changes to the anti-money laundering compliance program to establish: (1) timeframes within which the required independent testing function must be performed; (2) qualification and independence standards for those who conduct such testing function; and (3) jurisdictional requirements pertaining to a person designated to implement and monitor the day-to- day operations and internal controls of the program. Publication of the order is expected in the Federal Register during the week of January 30. (Rel. 34-53176) The Commission approved a proposed rule change (SR-NASD-2005-135), submitted under Rule 19b-4 under the Securities Exchange Act of 1934 by NASD relating to the status of former registered persons serving in the Armed Forces of the United States. Publication of the order is expected to appear in the Federal Register during the week of January 30. (Rel. 34-53182)