SEC NEWS DIGEST Issue 2004-16 January 26, 2004 ENFORCEMENT PROCEEDINGS INITIAL DECISION IN THE MATTER OF CASTLE SECURITIES CORP. AND MICHAEL T. STUDER On January 23, an Administrative Law Judge issued an Initial Decision in Administrative Proceeding No. 3-11229, Castle Securities Corp. and Michael T. Studer. The Initial Decision finds that the United States District Court for the Southern District of New York permanently enjoined Respondents Castle Securities Corp. (Castle) and Michael T. Studer (Studer) in connection with the offering and trading of securities issued by Windfall Capital Corp. and United States Environmental, Inc. The Initial Decision revokes the registration of Castle as a broker or dealer and bars Studer from association with any broker or dealer. (Initial Decision No. 244; File No. 3-11229) SEC INSTITUTES ADMINISTRATIVE PROCEEDING AGAINST JAMES GEORGE AND ISSUES ORDER MAKING FINDINGS AND IMPOSING REMEDIAL SANCTIONS On January 26, the Commission issued an Order Instituting Administrative Proceedings Pursuant to Section 15(b) of the Securities Exchange Act of 1934, Making Findings And Imposing Remedial Sanctions against James L. George of New Bern, N.C. The Order directed that George be barred from association with any broker or dealer. In the Order, the Commission finds that it previously filed a civil injunctive action entitled SEC v. James L. George, Paul E. Brodhagen and Michael J. Wright, Civil Action File No. 1:02-CV-3310-HTW (N.D.Ga.). A final judgment permanently enjoining George from violating Sections 5 and 17(a) of the Securities Act of 1933, Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder, and Section 15(a) of the Exchange Act was entered in that matter on Dec. 3, 2003. The Order of Permanent Injunction and Other Relief directed that George pay disgorgement in the amount of $157,787, prejudgment interest thereon in the amount of $50,574, and a civil penalty of $25,000. The court ordered all monies to be paid in a series of payments over a period of one year. George consented to the entry of the final judgment of permanent injunction without admitting or denying the allegations contained in the Commission's complaint. George tendered an Offer of Settlement in which he admitted the jurisdiction of the Commission over him and the entry of the final judgment against him in the district court. However, George neither admitted nor denied other findings contained in the Order. The Commission accepted his Offer of Settlement. (Rel. 34-49128; File No.3-11382). SEC SUES TO HALT OFFERING FRAUD AND FREEZE ASSETS FOR INVESTORS On January 23, the United States District Court for the District of Kansas granted the SEC's request, in its complaint filed the same day, for emergency relief, including a temporary restraining order, preliminary injunction, asset freeze, asset repatriation order and orders expediting discovery and prohibiting document destruction. As a result of the Court's ruling, $1 million in investor funds have been frozen. The Court ordered the relief against the defendants named in the Commission's complaint: Kings Real Estate Investment Trust (Kings REIT), Monte R. Swanzy, Stephen P. Swanzy, David L. Knudson, Reliance Enterprises, LLC (Reliance) and Van E. Brighton, individually and d/b/a Brighton Funding Group. The Commission alleges in its complaint that the defendants committed securities fraud and offering registration violations in connection with a fraudulent scheme that has elicited $1.9 million from investors. The Commission also alleges in its complaint that defendants Knudson and Brighton violated the broker- dealer registration provisions of the federal securities laws. In its complaint, the Commission alleges that the defendants defrauded investors by making the following false claims: 1) that Kings REIT has $100 million in assets; 2) that Kings REIT would pool the initial $1 million of investor funds raised, and maintain the funds for one year intact and free of risk in a Kings REIT account; 3) that the Kings REIT investment is very safe; and 4) that Kings REIT would pay to its investors returns of four to seven percent monthly or 48 to 90 percent annually. The Commission further alleges that the defendants failed to disclose that, in reality, Kings REIT engages in no legitimate business or investment activities, and that the defendants were systematically misappropriating the investors' funds for their own benefit and to pay undisclosed sales commissions. The Commission alleges in its complaint that the defendants Kings REIT, Reliance, Monte Swanzy, Stephen Swanzy, Knudson and Brighton, individually and d/b/a Brighton Funding Group, each 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 and Rule 10b-5 thereunder, and that, additionally, defendants Knudson and Brighton violated Section 15(a) of the Exchange Act. In addition to the emergency relief that has been granted, the Commission seeks, against the defendants, permanent injunctions, disgorgement plus prejudgment interest and civil money penalties. The Commission also seeks disgorgement plus prejudgment interest from the relief defendants. [SEC v. Monte R. Swanzy, et al., Civil Action No. 04-4006 RDR, U.S.D.C./D. Kan./Topeka Div.] (LR-18553) INVESTMENT COMPANY ACT RELEASES PACIFICARE OF ARIZONA, INC., ET AL. A temporary order has been issued under Section 3(b)(2) of the Investment Company Act granting PacifiCare of Arizona, Inc., PacifiCare of California, PacifiCare of Colorado, Inc., PacifiCare of Nevada, Inc., PacifiCare of Oregon, Inc., PacifiCare of Texas, Inc., and PacifiCare of Washington, Inc. (Applicants) a temporary exemption from all provisions of the Act, effective Jan. 28, 2004. Applicants filed an application on March 31, 2003, and amendments on May 23, 2003, Sept. 15, 2003, and Jan. 21, 2004, for an order under Section 3(b)(2) declaring that each Applicant is not an investment company. The temporary order further extends the sixty-day automatic exemption provided by Section 3(b)(2) upon the filing of an application in good faith until May 26, 2004. Prior to the issuance of a permanent order to one or more of the Applicants, if any, the Commission will issue a notice giving interested persons an opportunity to request a hearing. (Rel. IC-26339 - January 23) SELF-REGULATORY ORGANIZATIONS IMMEDIATE EFFECTIVENESS OF PROPOSED RULE CHANGES A proposed rule change and Amendment No. 1 thereto (SR-CBOE-2003-60) filed by the Chicago Board Options Exchange relating to calendar year 2004 fees has become effective 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 26. (Rel. 34-49118) On January 9 and on January 16, the NASD filed proposed rule changes with the Commission (SR-NASD-2004-03 and SR-NASD-2004-10, respectively) relating to establishing effective dates for certain provisions of NASD Rule 2711 and NASD Rule 1050, which became immediately effective under Section 19(b)(3)(A) of the Securities Exchange Act of 1934. On January 16, the New York Stock Exchange filed a proposed rule change with the Commission (SR-NYSE-2004-01) relating to establishing effective dates for certain provisions of NYSE Rule 472 and NYSE Rule 344, which became immediately effective under Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication of the proposal is expected in the Federal Register during the week of January 26. (Rel. 34-49119) ACCELERATED APPROVAL OF PROPOSED RULE CHANGE A proposed rule change (SR-AMEX-2003-114) filed by the American Stock Exchange to amend Commentary .11(a) to its Rule 958 to expand the number of registered options traders entitled to vote in connection with the Marketing Fee Program has been filed and has been granted accelerated approval as a pilot project to run though March 30, 2004. Publication of the proposal is expected in the Federal Register during the week of January 26. (Rel. 34-49115) PROPOSED RULE CHANGE The American Stock Exchange filed a proposed rule change (SR-Amex-2003-111) to amend Sections 1203, 1204 and 1205 of the Amex Company Guide to increase the fees applicable to issuers requesting review of a determination to limit or prohibit the initial or continued listing of their securities. Publication of the proposal is expected in the Federal Register during the week of January 26. (Rel. 34-49116) WITHDRAWALS A notice has been issued giving interested persons until Feb. 17, 2004, to comment on the application of Washington Mutual Finance Corporation to withdraw its 6.875 % Senior Notes (due May 15, 2011) from listing and registration on the New York Stock Exchange. (Rel. 34-49120) A notice has been issued giving interested persons until Feb. 17, 2004, to comment on the application of Michael Anthony Jewelers, Inc. to withdraw its common stock, $.001 par value, from listing and registration on the American Stock Exchange. (Rel. 34-49121)