SEC NEWS DIGEST Issue 2002-80 April 25, 2002 ENFORCEMENT PROCEEDINGS FINAL JUDGMENT ENTERED AGAINST FORMER TELXON CFO KENNETH HAVER The Commission today announced that the Honorable James Gwin of the United States District Court for the Northern District of Ohio has entered a Final Judgment against Kenneth W. Haver, the former Chief Financial Officer of Telxon Corp. In its complaint, filed March 5, 2002, the Commission alleged that Haver, age 43, of Akron, Ohio, caused Telxon to recognize revenue improperly in the fall of 1998, and that Haver failed to properly account for several other prior transactions. On March 13, 2002, Haver consented, without admitting or denying the allegations of the complaint, to the entry of the Final Judgment, which permanently enjoins Haver from violating Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5 and 13b2-1 promulgated thereunder, and further enjoins him from aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder, and orders him to pay a civil penalty of $75,000. On April 24, Haver, an inactive CPA licensed in Ohio, also consented to the entry of an order under the Commission's Rule of Practice 102(e) which will suspend him from appearing or practicing before the Commission as an accountant for five years. Prior to being acquired by another company in December 2000, Telxon was a leading manufacturer of hand held computers and related systems. [SEC v. Kenneth W. Haver, USDC, District of Ohio, Akron Division, Docket No. 5:02CV414] (LR-17489, AAE Rel. 1548); (Administrative Proceeding in the Matter of Kenneth W. Haver, CPA - Rel. 34-45814, AAE Rel. 1547, File No. 3-10764) COMMISSION FILES ORDER INSTITUTING PROCEEDINGS AGAINST J.W. BARCLAY & CO., INC., ITS TWO PRINCIPALS AND SIX FORMER REGISTERED REPRESENTATIVES On April 24, the Commission filed an Order Instituting Public Administrative and Cease-and-Desist Proceedings pursuant to Section 8A of the Securities Act of 1933 and Sections 21A and 15(b) of the Securities Exchange Act of 1934 (Order), against J.W. Barclay & Co., Inc. (Barclay), a broker-dealer registered with the Commission, the following persons formerly associated with Barclay: John A. Bruno (Bruno) age 39, Barclay's controlling person and president, who resides in Red Bank, New Jersey; Michael J. Wills (Wills), age 36, Barclay's vice president and managing partner, who resides in Summit, New Jersey; and the following former Barclay registered representatives (together, registered representatives): Edgar B. Alacan (Alacan), age 30, who resides in Staten Island, New York; Emmanuel P. "Dexter" Cube (Cube), age 31, who resides in Middletown, New Jersey; Mayer Dallal (Dallal), age 29, who resides in Great Neck, New York; Danoo Noor, Sr. (Noor), age 31, who resides in Staten Island, New York; Emanuele A. Scarso (Scarso), age 29, who resides in Brooklyn, New York; Michael Brian Scott (Scott), age 36, who resides in Nutley, New Jersey. In the Order, the Division of Enforcement (Division) alleges that the registered representatives engaged in fraudulent sales practices in the accounts of their customers. According to the Division, between June 1997 and December 1998, the registered representatives made unauthorized trades, made unsuitable trades, made material misstatements and omitted to state material facts concerning stocks, churned their customers' accounts and failed to execute sell orders or other instructions from their customers. In addition, the Order alleges that Barclay, Bruno and/or Wills failed reasonably to supervise the activities of the registered representatives. The Order alleges that Barclay, Bruno and/or Wills instituted an inadequate supervisory system by failing to hire enough supervisors for the number of registered representatives associated with Barclay, and by failing to establish adequate procedures designed to detect and prevent sales practice violations and securities fraud resulting from those violations. Barclay, Bruno and/or Wills also ignored or failed to recognize red flags regarding the registered representatives' misconduct, including but not limited to scores of customer complaints, the recommendations of Barclay's compliance director to discipline and/or fire certain registered representatives and to improve the firm's supervisory procedures, and examination reports and letters from the NASD concerning Barclay's supervisory personnel and procedures. The Division further alleges that Alacan, Cube, Dallal, Noor, Scarso and Scott willfully violated Section 17(a) of the Securities Act of 1933 (Securities Act), and Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 promulgated thereunder. The Division also alleges that Barclay, Bruno and Wills failed reasonably to supervise the registered representatives within the meaning of Section 15(b) of the Exchange Act. A hearing will be scheduled before an administrative law judge to determine whether the allegations contained in the Order are true, to provide Barclay, Bruno, Wills, Alacan, Cube, Dallal, Noor, Scarso and Scott an opportunity to dispute the allegations against them, and to determine what sanctions, if any, are appropriate, including a suspension, bar, disgorgement, prejudgment interest, civil penalties, and in the case of the registered representatives, a cease-and-desist order. (Rels. 33-8094; 34-45815; File No. 3-10765) ADMINISTRATIVE PROCEEDINGS INSTITUTED AGAINST AND SIMULTANEOUSLY SETTLED WITH WILLIAM HAYNES On April 25, the Commission has entered an Order Instituting Public Administrative Proceedings Pursuant to Section 15(b) of the Securities Exchange Act of 1934 (Exchange Act), Making Findings and Imposing Remedial Sanctions against William L. Haynes (Haynes). The Commission simultaneously accepted Haynes' Offer of Settlement, barring him from association with any broker or dealer. On September 28, 2001, the Commission filed a complaint in the United States District Court for the Southern District of Florida against Haynes, among others, charging Haynes with violating the securities registration, broker-dealer registration, and antifraud provisions of the federal securities laws, in connection with the offering of securities through an unregistered broker-dealer, Global Asset Partners, Ltd., SEC v. Global Asset Partners, Ltd., et al., Civil Action No. 01-8862-CIV-MIDDLEBROOKS (S.D. Fla. Oct. 1, 2001). On October 1, 2001, a Final Judgment of Permanent Injunction and Other Relief was entered, by consent, against Haynes enjoining him from future violations of Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933, Sections 10(b) and 15(a)(1) of the Exchange Act and Rule 10b-5 thereunder. (Rel. 34-45820; File No. 3-10766) ORDER INSTITUTING ADMINISTRATIVE PROCEEDING AGAINST THE S.I.N.C.L.A.R.E GROUP, INC. On April 25, the Commission instituted an administrative proceeding against The S.I.N.C.L.A.R.E. Group, Inc., now a defunct Delaware corporation, seeking revocation or suspension of the registration of its common stock. In the Order Instituting Proceedings And Notice of Hearing (Order), the Division of Enforcement (Division) alleges, among other things, that Sinclare has failed to file mandatory annual or quarterly reports for any fiscal period subsequent to its fiscal quarter ended October 31, 1996, has failed to file certain mandatory current reports, and has made false and misleading statements concerning the validity of its corporate status in a press release dated August 30, 1999 and a corporate website, www.uscement.com, from at least February 2000 to the present. The Order further alleges that Sinclare thereby failed to comply with Sections 10(b) and 13(a) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 10b-5, 13a-1, 13a-11 and 13a-13 thereunder. The proceedings were instituted under Section 12(j) of the Exchange Act. A hearing will be scheduled before an administrative law judge to determine whether the allegations contained in the Order are true, to provide Sinclare an opportunity to dispute these allegations, and to determine whether it is necessary and appropriate for the protection of investors to revoke or suspend the registration pursuant to Section 12(g) of the stock of Sinclare. (Rel. 34-45821; File No. 3-10767) ORDER INSTITUTING ADMINISTRATIVE PROCEEDING AGAINST HIGHTEC, INC. The Commission instituted an administrative proceeding against Hightec, Inc. (Hightec), now a defunct Delaware corporation, seeking revocation or suspension of the registration of its common stock. In the Order Instituting Proceedings And Notice of Hearing (Order), the Division of Enforcement (Division) alleges, among other things, that Hightec has failed to file mandatory annual or quarterly reports for any fiscal period subsequent to its fiscal quarter ended September 30, 1996, has failed to file certain mandatory current reports, and has made false and misleading statements in a variety of media concerning the validity of its corporate status. The Order further alleges that Hightec thereby failed to comply with Sections 10(b) and 13(a) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 10b-5, 13a-1, 13a-11 and 13a-13 thereunder. The proceedings were instituted under Section 12(j) of the Exchange Act. A hearing will be scheduled before an administrative law judge to determine whether the allegations contained in the Order are true, to provide Hightec an opportunity to dispute these allegations, and to determine whether it is necessary and appropriate for the protection of investors to revoke or suspend the registration pursuant to Section 12(g) of the stock of Hightec. (Rel. 34-45822; File No. 3-10768) FATHER AND SON PAY $3,200,242 TO SETTLE INSIDER TRADING ACTION ALLEGING USE OF SWISS ACCOUNTS On April 23, Judge Denny Chin in the United States District Court for the Southern District of New York, entered a Final Judgment against Elias I. Kodsi and his son, Alain D. Kodsi, both of Brooklyn, New York. The defendants were ordered to pay $3,200,242 in disgorgement, interest and penalties in a Commission action that charged them with insider trading in the securities of BetzDearborn Inc. The Kodsis settled the action without admitting or denying the allegations in the Commission's complaint. The judgment orders Elias and Alain Kodsi, jointly and severally, to pay disgorgement of trading profits totaling $963,750, plus prejudgment interest of $308,992. Each of the defendants was also ordered to pay a separate penalty of $963,750. The Commission's complaint in this matter, filed in October 2001, alleges that Rodolfo Luzardo, a former employee of J.P. Morgan Securities, Inc., Alain D. Kodsi, a co-owner of a venture capital firm, and Elias I. Kodsi, a retired jewelry distributor, engaged in illegal insider trading in advance of the July 30, 1998 announcement that BetzDearborn Inc. and Hercules Inc. had agreed to merge. The complaint alleges that Luzardo misappropriated confidential information regarding the pending merger from his then-employer, J.P. Morgan, which was the adviser to BetzDearborn. According to the complaint, Luzardo tipped his friend and new employer, Alain Kodsi, who in turn tipped his father, Elias Kodsi. The complaint further alleges that Elias Kodsi purchased 30,000 shares of BetzDearborn common stock through two numbered Swiss accounts the day before the merger was announced at a cost of over $1 million, and that after the announcement on July 30, Elias Kodsi sold the shares for unlawful profits of $963,750. The complaint alleges that as a result of the conduct described above, Elias Kodsi, Alain Kodsi, and Luzardo violated Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder. . Elias I. Kodsi and Alain D. Kodsi consented, without admitting or denying the allegations of the complaint, to the entry of a final judgment that permanently enjoins them from violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. Judge Chin ordered the defendants to pay the following: (1) Elias I. Kodsi and Alain D. Kodsi, jointly and severally, $963,750 disgorgement, and $308,992 in prejudgment interest; and (2) Elias I. Kodsi and Alain D. Kodsi to each pay $963,750 in civil penalties. The Commission's case against defendant Luzardo is continuing. For further information see Litigation Release No. 17197 (October 18,2001). [SEC v. Rodolfo Luzardo, et al., United States District Court for the Southern District of New York, 01 Civ. 9206 (DC)] (LR-17486) SEC BRINGS ADDITIONAL CHARGES AGAINST FORMER BOSTON-AREA MONEY MANAGER STEVIN HOOVER FOR THEFT OF CLIENT FUNDS The Commission today announced the filing of an amended complaint in federal court in Boston bringing additional charges against money manager Stevin R. Hoover, and his registered investment advisory firm, Hoover Capital Management (HCM), and adding Hoover's unregistered investment advisory firm, Chestnut Management, as a defendant. The amended complaint alleges that the defendants solicited and obtained investments in the Chestnut Fund LP, a domestic hedge fund established by Hoover in April 2000, by making fraudulent misrepresentations to prospective investors, both orally and in writing in the fund's private placement memorandum. The amended complaint also alleges that during an 18 month period after establishing the hedge fund, the defendants misappropriated more than $625,000 from the hedge fund, improperly used these funds for personal and business expenses, and concealed the misappropriation by distributing fictitious account statements to investors. At the same time defendants were depleting the hedge fund's assets, Hoover was also using his position as the fund's investment adviser for his own personal gain. In February 2001, Hoover agreed that the hedge fund would purchase convertible debentures in a privately held company. During negotiations over the terms of the debentures, Hoover, in breach of his fiduciary duties to the hedge fund, offered that the company could pay a lower interest rate on the hedge fund's investment in return for Hoover receiving both a higher "finder's fee," and options to purchase common stock in the company. Lastly, the amended complaint alleges that to satisfy the hedge fund's obligation to purchase the convertible debentures, Hoover invested $700,000 that belonged to another client, a private charitable foundation. This investment was not disclosed to the foundation, and the foundation's investment management agreement with Hoover expressly prohibited investments in privately-held companies. The Commission filed its initial complaint on May 2, 2001 charging Hoover and HCM among other things, with misappropriating $475,000 from HCM clients between 1995 and 1998. On November 15, 2001, the Commission filed a motion for a temporary restraining order and asset freeze based on allegations that Hoover and HCM has misappropriated more the $470,000 from the Chestnut Fund. The court entered a temporary restraining order against Hoover and HCM on November 19, 2001. On December 13, 2001, with defendants' consent, the court entered a Preliminary Injunction and froze Hoover and HCM's assets (except for funds unrelated to the fraud acquired after November 21, 2001). For further information see LR- 17248; LR-16938; LR- 17236; and LR-17240. [SEC v. Hoover and Hoover Capital Management, Inc., Civ. A. No. 01 CV 10751 (RGS) (D. Mass.)] (LR- 17487) SEC SUES BY AREA STOCKBROKER FOR DEFRAUDING ELDERLY INVESTORS IN PONZI SCHEME On April 24, the Commission sued an Alameda County-based stockbroker for fraudulently raising approximately $3 million from his elderly clients by selling fictitious investments he claimed were offered by Charles Schwab & Co. In reality, the Schwab funds he described did not exist and he simply deposited the money into his personal brokerage account. In a complaint filed in the United States District Court for the Northern District of California, the Commission alleges that William M. Ucherek, through his work selling municipal bonds, developed relationships with many elderly investors. Beginning in at least 1998, Ucherek offered at least 20 clients investments in what he claimed were pooled municipal bond funds that would pay a fixed rate of interest, tax- free. Ucherek called these funds the Schwab 12, Schwab 24, and Schwab 36 (depending on the term of the investment). In fact, no such funds exist. Ucherek used the money to pay personal expenses, including car payments, credit card bills and gambling debts. In addition, Ucherek used some of the proceeds to pay prior investors, and also provided phony account statements to create the appearance of a bona fide investment fund. According to the complaint, in late 2001 one of the investors contacted Schwab, which initiated an internal investigation and traced the scheme back to Ucherek. Ucherek subsequently admitted his misconduct to the staff of the Commission. The Commission's complaint charges that Ucherek committed securities fraud in violation 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 complaint seeks a permanent injunction against future violations, disgorgement of all ill gotten gains and a civil monetary penalty from Ucherek. [SEC v. William M. Ucherek, USDC, NDCA, Civil Action No. C-02-2003] (LR-17488) FORMER PRINCIPAL OF REGISTERED INVESTMENT ADVISER PLEADS GUILTY TO DEFRAUDING INVESTORS The United States Attorney for the District of Oregon announced that on April 23 Jeffrey L. Grayson pleaded guilty to one count of mail fraud and one count of assisting in the preparation of a false tax return in connection with his role as the former principal of Capital Consultants, LLC, a registered investment adviser located in Portland, Oregon. Jeffrey Grayson admitted that between 1994 and 2000, he engaged in a scheme to defraud Capital Consultants' clients, mostly union pension and benefit plans. The criminal charges against Jeffrey Grayson carry a maximum penalty of 8 years in prison and maximum fine of $500,000. The Commission charged Capital Consultants, Jeffrey Grayson and his son, Barclay L. Grayson, with fraud and obtained emergency relief against them in September 2000. The complaint alleged that the defendants were operating an undisclosed Ponzi-like scheme in which they used client funds to make interest payments to other clients who were invested in a $160 million loan that Capital Consultants made to Wilshire Credit Corp. On April 30, 2001, the Court entered permanent injunctions against Capital Consultants and the Graysons. Capital Consultants is currently in receivership. On February 26, 2002, an amended permanent judgment of permanent injunction was entered against Barclay Grayson that did not assess a civil penalty against him based upon his demonstrated inability to pay. On November 20, 2001, Barclay Grayson was sentenced to two years in prison in a related criminal action. [SEC v. Capital Consultants, LLC, Jeffrey L. Grayson and Barclay L. Grayson, Civil Action No. 1290 KI (D. Or.)]; [U.S. v. Jeffrey Lloyd Grayson, CR-01-377- BR (D. Or)] (LR-17490) INVESTMENT COMPANY ACT RELEASES ORDERS OF DEREGISTRATION UNDER THE INVESTMENT COMPANY ACT Orders have been issued under Section 8(f) of the Investment Company Act declaring that each of the following has ceased to be an investment company: Amivest/NFB Funds Trust [File No. 811-9719] (Rel. IC- 25534 - April 24, 2002) Firstar Funds, Inc. [File No. 811-5380] (Rel. IC- 25535 - April 24, 2002) Merrill Lynch Utility Income Fund, Inc. [File No. 811-7071] (Rel. IC- 25536 - April 24, 2002) The Rightime Fund, Inc. [File No. 811-4231] (Rel. IC- 25537 - April 24, 2002) Van Ness Funds [File No. 811-9741] (Rel. IC- 25538 - April 24, 2002) Dresdner RCM Global Strategic Income Fund, Inc. [File No. 811-4800] (Rel. IC- 25539 - April 24, 2002) DG Investor Series [File No. 811-6607] (Rel. IC- 25540 - April 24, 2002) Nomura Pacific Basin Fund, Inc. [File No. 811-4269] (Rel. IC- 25541 - April 24, 2002) Cardinal GNMA Trust, First Series and Subsequent Series [File No. 811-3948] (Rel. IC- 25542 - April 24, 2002) Universal Capital Investment Trust [File No. 811-6212] (Rel. IC- 25543 - April 24, 2002) CDC MPT & Funds [File No. 811-9083] (Rel. IC- 25544 - April 24, 2002) Nations LifeGoal Funds, Inc. [File No. 811-7745] (Rel. IC- 25545 - April 24, 2002) FT Defined Portfolios LLC [File No. 811-10015] (Rel. IC- 25546 - April 24, 2002) First Defined Sector Fund [File No. 811-10017] (Rel. IC- 25547 - April 24, 2002) Global Income Strategies Fund, Inc. (formerly Global High Yield Fund, Inc.) [File No. 811-8757] (Rel. IC- 25548 - April 24, 2002) Merrill Lynch Real Estate Fund, Inc. [File No. 811-8389] (Rel. IC- 25549 - April 24, 2002) Mercantile Mutual Funds, Inc. [File No. 811-3567] (Rel. IC- 25550 - April 24, 2002) T. Rowe Price Short-Term U.S. Government Fund, Inc. [File No. 811-6386] (Rel. IC- 25551 - April 24, 2002) INVESTEC ERNST & COMPANY, ET AL. An order has been issued on an application filed by Investec Ernst & Company, et al., under Section 12(d)(1)(J) of the Investment Company Act granting an exemption from Section 12(d)(1)(F)(ii) of the Act, under Sections 6(c) and 17(b) of the Act granting an exemption from Section 17(a) of the Act, and under Section 6(c) of the Act granting exemptions from Sections 14(a) and 19(b) of the Act and Rule 19b-1 under the Act. The order permits series of certain registered unit investment trusts to: (a) offer and sell their units to the public with a sales load that exceeds the 1.5% limit in Section 12(d)(1)(F)(ii) of the Act; (b) invest in affiliated registered investment companies within the limits of Section 12(d)(1)(F) of the Act; and (c) publicly offer their units without requiring Investec Ernst & Company, as sponsor, to take for its own account or place with others $100,000 worth of units, and distribute capital gains resulting from the sale of portfolio securities within a reasonable time after receipt. (Rel. IC-25552 - April 24) INVESTEC ERNST & COMPANY, ET AL. An order has been issued on an application filed by Investec Ernst & Company, et al., under Section 6(c) of the Investment Company Act granting exemptions from Sections 2(a)(32), 2(a)(35), 22(d) and 26(a)(2)(C) of the Act and Rule 22c-1 under the Act, under Sections 11(a) and 11(c) of the Act approving certain offers of exchange, rollover privileges and conversion offers, and under Sections 6(c) and 17(b) of the Act granting an exemption from section 17(a) of the Act. The order permits certain unit investment trusts to: (a) impose sales charges on a deferred basis and waive the deferred sales charge in certain cases; (b) offer unitholders certain exchange and rollover privileges and conversion offers; and (c) sell portfolio securities of a terminating series of a unit investment trust to a new series of that trust. (Rel. IC-25553 - April 24) SELF-REGULATORY ORGANIZATIONS PROPOSED RULE CHANGES A proposed rule change has been filed with the Commission by the Pacific Exchange to limit the number of PCX memberships that any person may own (SR-PCX-2002-11). The proposed rule change would provide that no person, associated person, or group of associated persons may own, or control the voting rights of, more than 15% of the number of authorized PCX memberships. Publication of the proposal is expected in the Federal Register during the week of April 29. (Rel. 34-45793) The Boston Stock Exchange filed a proposed rule change (SR-BSE-2001-09) relating to clearly erroneous transactions in Nasdaq securities. Publication of the proposal is expected in the Federal Register during the week of April 29. (Rel. 34-45799) A proposed rule change has been filed by the National Futures Association (SR-NFA-2002-01) under Section 19(b)(7) of the Securities Exchange Act of 1934 ("Act") relating to an Interpretive Notice concerning NFA Compliance Rule 2-9, Supervision of the Use of Automated Order-Routing Systems. Publication of the proposal is expected in the Federal Register during the week of April 29. (Rel. 34-45812) AMENDMENTS NOS. 2 AND 3 TO THE OPTIONS INTERMARKET LINKAGE PLAN The American Stock Exchange, Chicago Board Options Exchange, International Stock Exchange, Pacific Exchange, and Philadelphia Stock Exchange have submitted amendments to the Options Intermarket Linkage Plan, under Rule 11Aa3-2 of the Securities Exchange Act of 1934, relating to satisfaction of trade-throughs, the procedures for handling multiple principal orders, restrictions on withdrawal, and an implementation timetable. Publication of the proposal is expected in the Federal Register during the week of April 29. (Rel. 34-45795) APPROVAL OF PROPOSED RULE CHANGES The Commission approved a proposed rule change and Amendment No. 1 thereto submitted under Section 19(b)(1) of the Securities Exchange Act of 1934 by the Chicago Board Options Exchange (SR-CBOE-2001-65) to permit a single response from market makers to a request to execute a large order. (Rel. 34-45800) The Commission approved a proposed rule change, as amended by Amendment No. 1 thereto, submitted under Rule 19b-4 of the Securities Exchange Act of 1934 by the International Securities Exchange to restructure from a limited liability company to a corporation (SR-ISE-2002-01). Publication of the proposal is expected in the Federal Register during the week of April 29. (Rel. 34-45803)