Money market funds. The SEC published the proposing release and text of proposed amendments to the rules governing money market funds. The SEC’s proposal includes two principal alternative reforms that could be adopted alone or in combination. One alternative would require a floating net asset value for prime institutional money market funds. The other alternative would allow the use of liquidity fees and redemption gates in times of stress. The proposal also includes additional diversification and disclosure measures that would apply under either alternative. Comments should be submitted within 90 days after publication in the Federal Register, which is expected during the week of June 10. (6/5/2013) SEC press release.
Selected Enforcement Actions
Developer of “air hybrid” internal combustion engine violated Regulation D. The SEC instituted settled administrative proceedings against Scuderi Group, Inc. and its President, Salvatore Scuderi, for engaging in unregistered, non-exempt stock offerings and making misleading disclosures regarding the use of offering proceeds. Without admitting or denying the allegations, respondents consented to the entry of an order finding that between 2004 and 2011, Scuderi Group sold more than US$80 million worth of securities through unregistered, non-exempt offerings. The company’s private placement memoranda informed investors that Scuderi Group intended to use the proceeds from its offerings for “general corporate purposes, including working capital” in the development of an internal combustion engine that uses “split cycle” and “air hybrid” technologies to reduce fuel consumption and the emission of pollution. However, the company used offering proceeds to make significant, undisclosed payments to Scuderi family members for non-corporate purposes. The order further finds that although ostensibly comprised of discrete offerings, Scuderi Group’s offers and sales of securities constituted one integrated offering and that Scuderi Group engaged in several practices that improperly reduced the number of non-accredited investors recorded on its books. The order provides for certain undertakings and requires Scuderi to personally pay a civil penalty of US$100,000. (5/30/2013) In the Matter of Scuderi Group, Inc., SEC Release No. 33-9407.
Lying to the SEC leads to indictment. The SEC announced that the US Attorney’s Office for the Southern District of Florida has filed criminal charges against former broker and securities fraud recidivist Robert J. Vitale for obstructing justice and lying to SEC investigators looking into his real estate securities offerings. (5/30/2013) SEC press release.
Largest ever exchange fine levied against NASDAQ. The SEC instituted settled administrative proceedings against the NASDAQ Stock Market for securities law violations resulting from its poor systems and decision-making during the initial public offering and secondary market trading of Facebook shares. NASDAQ agreed to settle the charges by paying a US$10 million penalty, the largest ever against an exchange. The SEC found that a design limitation in NASDAQ’s system to match IPO buy and sell orders caused disruptions to the Facebook IPO. NASDAQ then made a series of decisions that led to the rules violations. NASDAQ also assumed a short position in Facebook of more than three million shares in an unauthorized error account. NASDAQ’s rules do not permit it to use an error account for any purpose. NASDAQ subsequently covered that short position for a profit of approximately US$10.8 million, also in violation of its rules. NASDAQ further violated its rules during the opening of trading after the end of the display-only period for Facebook and following a trading halt in Zynga. (5/29/2013) SEC press release.
Enforcement focus. DealBook discussed the SEC’s plans to refocus on accounting fraud. (6/3/2013) Enforcement.
Corporation Finance guidance. Staff from the SEC’s Division of Corporation Finance have issued guidance regarding conflict mineral disclosure and payments by resource extractor disclosure. (5/30/2013) The Wall Street Journal reported that the conflict mineral disclosure guidance clarifies that packaging materials are not subject to the rule. (6/3/2013) Clarification.
Investor Alert. The SEC issued an Investor Alert advising that a number of fraudulent solicitations are currently underway that purport to be affiliated with or sponsored by the US government and legitimate securities regulators. (5/30/2013)
President Obama nominates SEC Commissioners. President Barack Obama has nominated Kara Stein, an aide to Senator Jack Reed, to succeed SEC Commissioner Elisse Walter, and Michael Piwowar, an aide to Senator Mike Crapo, to succeed Commissioner Troy Paredes. (5/23/2013) Wall Street Journal.