SEC Announces 100 Percent Return of Funds to Defrauded Bio-Heal Investors

The Securities and Exchange Commission today announced the mailing of checks totaling more than $2.7 million to 833 investors who were victims of the fraudulent promotion and sale of illegally issued shares of Bio-Heal Laboratories, Inc. The Fair Fund distribution represents a 100 percent return of the defrauded investors' money.

In April 2005, the Commission sued Bio-Heal, a publicly-held company that claimed to develop topical natural healing products in Nicaragua, and five other corporate entities that received the illegally issued shares and sold them. When the Commission filed its complaint in the U.S. District Court for the Southern District of Florida, it obtained an emergency asset freeze against Bio-Heal and the other entities, freezing their proceeds from the sale of the illegally issued shares.

"The Commission's quick action in this case ensured this money would not be dissipated and lost to innocent investors," said David Nelson, the Commission's Regional Director in Miami. "We are particularly gratified that it has resulted in a 100 percent return of investors' losses through this Fair Fund."

In the Fair Funds provisions of the Sarbanes-Oxley Act of 2002, Congress gave the Commission increased authority to distribute ill-gotten gains and civil money penalties to harmed investors. To date, the Commission has returned more than $3 billion to investors through Fair Fund distributions.

The Commission's complaint against Bio-Heal alleged the company improperly issued 12 million shares of its stock to several entities without a restrictive legend based on a fraudulent attorney opinion letter claiming they were exempt from registration with the Commission. The complaint further alleged that two of those entities then dumped their Bio-Heal shares on the market at the same time as the stock was being fraudulently touted to investors over the Internet.

The Commission obtained a final judgment by consent against Bio-Heal, and default final judgments against the entities that received and sold the Bio-Heal shares, in April 2006, at which time the District Court also created the Fair Fund. The investors who were mailed distributions today bought Bio-Heal stock during the fraudulent touting in February, March, and April 2005.

Questions regarding the Fair Fund distribution may be directed to the Court-appointed distribution agent, Melanie E. Damian, Esq., by:

Visiting the fund Web site at http://www.biohealfund.com;

Calling toll-free 1-800-648-0755;

Writing to Melanie E. Damian, Esq. at either Damian & Valori LLP, 1000 Brickell Avenue, Suite 1020, Miami, FL, 33131 or c/o Global Risk Solutions, Inc., P.O. Box 310130, Miami, FL, 33231.

SEC Charges American Stock Exchange and Former Chairman and CEO Salvatore Sodano with Failing to Exercise Regulatory Oversight Responsibilities

The Securities and Exchange Commission today issued a settled cease-and-desist order against American Stock Exchange LLC for failing to enforce compliance with securities laws and rules and failing to comply with its record-keeping obligations. In the order, the Commission found that from at least 1999 through June 2004, the Amex failed adequately to surveil for violations of order handling rules by Amex members and failed to keep and furnish surveillance and other records.

In addition, the Commission instituted contested administrative proceedings against Salvatore F. Sodano, the Amex's former chairman and chief executive officer, alleging that he failed to enforce compliance with federal securities laws and exchange rules by Amex members and persons associated with those members.

Linda Chatman Thomsen, Director of the Commission's Division of Enforcement, said, "Enforcing compliance with federal securities laws, and a self-regulatory organization's own rules, is a central function of a self-regulatory organization. Today's action against the Amex demonstrates that the Commission will be vigilant in making certain that SROs fulfill their regulatory responsibilities."

SEC Associate Director Scott W. Friestad said, "Senior management of a self-regulatory organization play a critical role in establishing a culture of compliance and are ultimately responsible for ensuring that the organization is meeting its regulatory objectives. Our action against Mr. Sodano alleges that he improperly abdicated his oversight responsibilities and ignored repeated red flags regarding the Amex's regulatory deficiencies."

In its order against the Amex, the Commission found that, from at least 1999, the Amex was on notice that its surveillance, investigatory, and enforcement programs were inadequate. The Amex previously had consented to the issuance of a Sept. 11, 2000, order that, in part, directed the Amex to enhance and improve its regulatory programs for surveillance, investigation, and enforcement of the options order handling rules. The Commission found that, notwithstanding the September 2000 order, the Amex's surveillance programs for options order handling remained inadequate to detect violations of firm quote, customer priority, limit order display, and trade reporting, and other rules. When the Amex's surveillance programs detected rule violations, the Amex failed to investigate violations properly, improperly excused violations, and failed to pursue adequately disciplinary actions for rule violations. The Commission also found that as late as June 2004, the Amex had similar deficiencies in its surveillance for equity order handling and floor broker violations. In addition to the deficiencies in the Amex's surveillance, investigatory, and enforcement programs, the Commission found that the Amex failed to keep and furnish certain records relating to its surveillance, investigatory, and enforcement activities and further furnished the Commission with inaccurate documents.

Pursuant to the order, the Commission censured the Amex and ordered it to cease and desist from violating Sections 17(a)(1) and 19(g)(1) of the Exchange Act and Exchange Act Rule 17a-1. The Commission further ordered the Amex to comply with undertakings (1) to file a rule proposal with the Commission to enhance its trading systems so that specialists systemically will be prevented from violating the Amex's customer priority rules; (2) to enhance the Amex's training programs so that floor members and members of the Amex's regulatory staff responsible for surveillance, investigation, and regulation will be required to receive annual training related to compliance with federal securities laws and Amex rules; and (3) to retain an auditor to conduct three biennial audits of the Amex's surveillance, examination, and disciplinary programs related to trading. Without admitting or denying the Commission's findings, the Amex consented to the issuance of the Commission's order.

In the separate, related proceeding against Sodano, the former chairman and CEO of the Amex, the Division of Enforcement alleged that the Amex's regulatory failures resulted in large part from Sodano's failures to make regulation an Amex priority, to pay adequate attention to regulation, to put in place an oversight structure to monitor compliance, to ensure that regulatory staff was properly trained, and to dedicate sufficient resources to regulation. These failures were particularly significant with respect to the Amex's options market because Sodano knew the Amex had been previously sanctioned by the Commission for its inadequate options regulation in the September 2000 order and that the Commission had ordered the Amex to enhance and improve its regulatory programs for surveillance, investigation, and enforcement of the options order handling rules. The proceedings instituted today against Sodano, pursuant to Section 19(h) of the Exchange Act, will determine whether Sodano failed, without reasonable justification or excuse, to enforce compliance with the federal securities laws, rules, and regulations, and Amex rules, by members of the Amex and persons associated with those members.

In a third, related proceeding, the Commission issued an order against Richard Robinson, a former Amex vice president responsible for overseeing the Amex's regulatory surveillance programs for the derivatives and options markets. The Commission found that Robinson was a cause of the Amex's violations by failing to oversee properly the Amex's surveillance program for derivatives and options, by failing to maintain properly Amex investigative files, and by signing and submitting an affirmation to the Commission on behalf of the Amex that contained inaccurate representations relating to the Amex's regulatory program. Without admitting or denying the Commission's findings, Robinson consented to the issuance of an order directing him to cease-and-desist from causing violation of Sections 17(a)(1) and 19(g)(1) of the Exchange Act and Exchange Act Rule 17a-1.

SEC Charges Four Former Senior Executives of Nortel Networks Corporation in Wide-Ranging Financial Fraud Scheme

The Securities and Exchange Commission today filed civil fraud charges in the U.S. District Court for the Southern District of New York against four former senior executives of Nortel Networks Corporation for repeatedly engaging in accounting fraud to bridge gaps between Nortel's true performance, its internal targets and Wall Street expectations. Nortel is a Canadian manufacturer of telecommunications equipment.

Named in the Commission's complaint are Frank A. Dunn, Douglas C. Beatty, Michael J. Gollogly and MaryAnne E. Pahapill. The complaint alleges that these individuals engaged in this misconduct while serving as top corporate executives of Nortel between September 2000 and January 2004. During that time, Dunn served as Chief Financial Officer and Chief Executive Officer; Beatty as Controller and Chief Financial Officer; Gollogly as Controller; and Pahapill as Assistant Controller and Vice President of Corporate Reporting.

"The fraudulent conduct at issue here was egregious and long-running. Each of the defendants betrayed Nortel's investors and their misconduct gave rise to billions of dollars in shareholder losses," said Linda Thomsen, Director of the Commission's Division of Enforcement. "The action we take today sends a strong message that officers of U.S.-filing foreign corporations will be held to the same standards of accountability that are required of all participants in the U.S. financial markets."

Christopher Conte, an Associate Director of the Commission's Division of Enforcement, stated, "The defendants charged today all disregarded accounting principles and disclosure requirements designed to provide investors with a clear and accurate picture of a company's performance. Investors were misled for extended periods of time about the health and stability of Nortel's operations. Further, these defendants all received significant compensation, in some cases in the millions of dollars, while they were manipulating Nortel's financial results. In some cases, these individuals received such compensation only because they manipulated Nortel's financial results."

According to the Commission's complaint, from late 2000 through January 2001, Dunn, Beatty and Pahapill altered Nortel's revenue recognition policies to accelerate revenue as needed to meet forecasts and, from at least July 2002 through June 2003, Dunn, Beatty and Gollogly improperly established, maintained and released reserves to meet earnings targets, fabricate profits and pay performance-related bonuses.

The complaint specifically alleges the following.

In late 2000, Beatty and Pahapill implemented changes to Nortel's revenue recognition policies that violated US GAAP, specifically to pull forward revenue to meet publicly announced revenue targets. However, because their efforts pulled in more revenue than needed to meet those targets, Dunn, Beatty and Pahapill selectively reversed certain revenue entries during the 2000 year-end closing process. These actions improperly boosted Nortel's fourth quarter and fiscal 2000 revenue by over $1 billion, while at the same time allowing the Company to meet, but not exceed, market expectations.

In November 2002, Dunn, Beatty and Gollogly learned that Nortel was carrying over $300 million in excess reserves. Dunn, Beatty and Gollogly did not release these excess reserves into income as required under US GAAP. Instead, they concealed their existence and maintained them for later use. Further, in early January 2003, Beatty, Dunn and Gollogly directed the establishment of yet another $151 million in unnecessary reserves during the 2002 year-end closing process to avoid posting a profit and paying bonuses earlier than Dunn had predicted publicly. These reserve manipulations erased Nortel's pro forma profit for the fourth quarter of 2002 and caused it to report a loss instead.

In the first and second quarters of 2003, Dunn, Beatty and Gollogly directed the release of at least $490 million of excess reserves specifically to boost earnings, fabricate profits and pay bonuses. These efforts turned Nortel's first quarter 2003 loss into a reported profit under US GAAP, which allowed Dunn to claim that he had brought Nortel to profitability a quarter ahead of schedule. In the second quarter of 2003, their efforts largely erased Nortel's quarterly loss and generated a pro forma profit. In both quarters, Nortel posted sufficient earnings to pay tens of millions of dollars in so-called "return to profitability" bonuses, largely to a select group of senior managers.

During the second half of 2003, Dunn and Beatty repeatedly misled investors as to why Nortel was conducting a purportedly "comprehensive review" of its assets and liabilities, which resulted in Nortel's restatement of approximately $948 million in liabilities in November 2003. Dunn and Beatty falsely represented to the public that the restatement was caused solely by internal control mistakes. In reality, Nortel's first restatement was necessitated by the intentional improper handling of reserves which occurred throughout Nortel for several years, and the first restatement effort was sharply limited to avoid uncovering Dunn, Beatty and Gollogly's earnings management activities.


The complaint charges Dunn, Beatty, Gollogly and Pahapill with violating and/or aiding and abetting violations of the antifraud, reporting, books and records, internal controls and lying to auditors provisions of the federal securities laws. Dunn and Beatty are separately charged with violations of the officer certification provisions instituted by the Sarbanes-Oxley Act. The Commission seeks a permanent injunction, civil monetary penalties, officer and director bars, and disgorgement with prejudgment interest against all four defendants.

The Commission acknowledges the assistance of the Ontario Securities Commission, which conducted its own separate, parallel investigation.

The Commission's investigation is continuing.

SEC Obtains Order Freezing $3 Million in Proceeds of Suspected Foreign-Based Account Intrusion Scheme

The Securities and Exchange Commission today announced that on Tuesday, March 6, 2007, it won an emergency court order freezing assets in a Latvian-based bank's trading account being used to conduct a hi-tech market manipulation scheme. The Commission's enforcement action is the third filed in as many months involving market manipulation schemes conducted through online account intrusions.

In an emergency federal court action filed in the United States District Court for the District of Columbia, the Commission alleged that the account, maintained by relief defendant JSC Parex Bank based in Riga, Latvia, had been used by one or more unknown offshore sub-account holders to launch a "pump and dump" manipulation scheme involving the stocks of fifteen different public companies. As part of the scheme, the unknown traders hacked into unsuspecting investors' online brokerage accounts at seven different brokerage firms, selling off investors' positions and using the proceeds to pump up the market for the stocks subject to the scheme. Through this technique, the unknown traders generated at least $732,941 in illicit profits and cost U.S. brokerages some $2 million in losses.

In response to the Commission's motion, the Court issued a temporary restraining order freezing the defendants' fraudulent profits held in JSC Parex's omnibus trading account.

SEC Enforcement Deputy Director Peter Bresnan stated, "In today's global economy, where con artists can misuse computer technology to defraud innocent U.S. investors from far beyond our borders, freezing the unlawful profits of those behind these intrusion schemes is especially important. Working to prevent injury to U.S. investors from intrusions into online brokerage accounts is a top priority of the Enforcement Division."

"Using sophisticated computer hacking and identity theft techniques to break into the accounts of innocent online brokerage customers," said SEC Office of Internet Enforcement Chief John Reed Stark, "these perpetrators effectively cut out the middleman of the old fashioned pump-and-dump scheme, eliminating phony stock promotions, creating their own artificial trading demand, and consummating their frauds in as little time as a couple of hours."

The Commission's complaint alleges a complex scheme that combines electronic intrusions into online brokerage accounts with a traditional market manipulation. From at least December 2005 through December 2006, one or more foreign-based unknown traders purchased, through four sub-accounts of an omnibus trading account titled in the name of Relief Defendant JSC Parex Bank and held at Pinnacle Capital Markets LLC of North Carolina, shares in 15 U.S.-based Nasdaq-traded companies. These unknown traders then hacked into unsuspecting investors' online brokerage accounts at seven major online broker-dealers and sold off investors' existing securities holdings. They then used the proceeds to buy shares on the open market of the thinly traded issuers the unknown traders had previously purchased in their own sub-accounts. This illicit account activity artificially heightened the share price and trading volume for each of the thinly traded issues and enabled the unknown traders to sell their holdings at a substantial profit, realizing at least $732,941 in ill-gotten gains, and possibly more. The unknown traders also used electronic means to hide their identities and mask the means by which they intruded into accounts.

The Commission's complaint further alleges that the unknown traders violated 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 and seeks permanent injunctions against future violations by the unknown traders, and disgorgement of all the unknown traders' ill-gotten gains, including prejudgment interest and civil penalties. The complaint also seeks a final judgment requiring Parex to disgorge any assets it may have obtained as a result of the unknown traders' scheme.

The SEC's Office of Investor Education and Assistance has issued an investor alert, which is available on the SEC's website, that provides tips for avoiding becoming a victim of an intrusion. See http://www.sec.gov/investor/pubs/onlinebrokerage.htm

The Commission acknowledges the assistance of the NASD in this matter.


Additional materials: Litigation Release No. 20030

SEC Announces $6.3 Million Settlement With Former Take-Two Interactive Software, Inc. CEO in Stock Option Backdating Scheme

The Securities and Exchange Commission today simultaneously filed and settled civil charges against Ryan Ashley Brant, formerly the Chief Executive Officer and Chairman of the Board of video and computer game publisher and distributor Take-Two Interactive Software, Inc. (Take-Two), alleging that during a seven year period, Brant enriched himself and others by granting undisclosed, "in the money" stock options to himself and to other Take-Two officers and employees.

Without admitting or denying the allegations of the Commission's complaint, Brant consented to the entry of an order permanently enjoining him from violating or aiding and abetting violations of the antifraud, reporting, record-keeping, internal controls, and securities ownership reporting provisions of the federal securities laws and permanently barring him from serving as an officer or director of a public company. Brant has consented to disgorge ill-gotten gains of $4,118,093 with $1,143,513 in prejudgment interest, and to pay a $1,000,000 civil penalty, for a total of $6,261,606. The settlement is subject to the approval of the United States District Court for the Southern District of New York.

Linda Chatman Thomsen, Director of the SEC's Enforcement Division, said, "As the Commission has alleged in its complaint filed today, the backdating scheme at Take-Two, which spanned seven years and was at Brant's direction, resulted not only in millions of dollars of ill gotten gains, but also caused Take-Two to materially misrepresent its financial condition to investors. The Commission's commitment to protecting the investor requires us to address vigorously undisclosed options backdating wherever and whenever it arises. Our action today sends the message that we take our duty very seriously."

Christopher Conte, an Associate Director in the Division of Enforcement, said, "The complaint alleges that Brant, with the participation and knowledge of senior executives and others at Take Two, looked back and picked grant dates to coincide with historically low prices, and that he did so, in virtually all instances, without Board approval for either the grant dates or exercise prices. This case highlights the need for public companies to ensure that their internal controls and oversight structures are adequate to prevent stock options from being granted in ways that are contrary to shareholder approved option plans."

The complaint alleges that from 1997 through September 2003, Brant, with the participation and knowledge of senior executives and others at Take-Two, looked back and picked grant dates for the company's incentive stock options that coincided with dates of historically low annual and quarterly closing prices for Take-Two's common stock, resulting in grants of "in-the-money" options. Brant and others at Take-Two referred to this practice as "pick-a-date" option granting. According to the complaint, Brant granted options to himself and others at Take-Two without complying with Take-Two's stock option plans and, in virtually all instances, without the Board or a Committee of the Board approving the grant dates or exercise prices. The complaint alleges that at Brant's direction, Take-Two officers and employees prepared documents falsely indicating that the option grants had been made on earlier dates when Take-Two's stock price had closed lower. From 1997 to September 2003, Brant awarded himself ten backdated option grants, representing a total of approximately 2.1 million shares of Take-Two common stock. Brant exercised all those options before resigning from Take-Two on Oct. 16, 2006.

The complaint further alleges that because of the undisclosed backdating scheme, Take-Two filed with the Commission quarterly and annual reports, proxy statements and registration statements that Brant knew, or was reckless in not knowing, contained materially false and misleading statements concerning the true grant dates and proper exercise prices of stock options, and which misled investors to believe that stock options were granted in accordance with the terms of the applicable stock option plans. According to the complaint, Take-Two materially understated its compensation expenses and materially overstated its quarterly and annual pre-tax earnings and earnings per share in its financial statements. Take-Two has announced that it must restate historical financial results for multiple years in order to record additional non-cash charges for option-related compensation expenses.

Separately, the New York County District Attorney's Office today announced that Brant has pled guilty to felony criminal charges of Falsifying Business Records in the First Degree and agreed to pay $1 million in lieu of fines and forfeiture, which will be distributed to state and local New York authorities.

Brant previously settled with the Commission for his alleged role in a massive financial fraud at Take Two in 2000 and 2001. On June 9, 2005, the Commission filed and simultaneously settled civil charges against Take-Two, Brant and other members of senior management in connection with an alleged $60 million video game parking scheme. SEC v. Take-Two Interactive Software, Inc., et al., Civil Action No. 1:05-CV-5443 (DLC) (S.D.N.Y. 2005) (filed June 9, 2005), Litigation Release No. 19260. In that action, Brant was permanently enjoined from violating and/or aiding and abetting violations of the antifraud, reporting, record-keeping, and internal controls provisions of the federal securities laws; barred from serving as an officer or director of any public company for five years; and ordered to pay disgorgement of $2,490,408, prejudgment interest of approximately $613,000, and a civil penalty of $500,000.

The Commission would like to acknowledge the assistance of the New York County District Attorney's Office, which conducted its own separate, parallel investigation.

The Commission's investigation is continuing.

SEC Charges Family With a $3.7 Million Insider Trading Scheme

The Securities and Exchange Commission today charged seven individuals with engaging in an insider trading scheme that netted over $3.7 million in profits and losses avoided over four years. The defendants include a father and his three sons, a family-run hedge fund, and other relatives and friends. The defendants also include accountants and lawyers at some of the nation's largest firms.

The SEC's complaint, filed in federal court in New York, alleges that the father, Zvi Rosenthal, formerly an executive with Taro Pharmaceuticals Industries, tipped his sons with confidential information concerning at least 13 separate Taro announcements, including earnings results and FDA drug approvals. The family pooled their money into a hedge fund in order to help conceal their trading in Taro securities from detection. In addition to trading in Taro stock and options in advance of the announcements, one of the sons tipped his supervisor at his law firm, a friend who worked at an accounting firm, and his father-in-law. Two of the defendants are also charged with using confidential information obtained from their employers, PricewaterhouseCoopers (PwC) and Ernst & Young (E&Y), concerning two possible mergers.

Mark K. Schonfeld, Director of the Commission's Northeast Regional Office, said, "This case is particularly troubling, not just because this appears to have been a 'family business' built on insider trading, but also because the defendants include accountants and lawyers at prominent firms. These are professionals who understand their obligation not to use confidential information for their own benefit."

The Commission's complaint, filed in the U.S. District Court for the Southern District of New York, charges seven individuals, two hedge funds, one investment adviser, and two relief defendants, including the following.

• Zvi Rosenthal (Zvi), age 62, was, from 2001 to January 2006, Taro's Vice President of Materials Management and Logistics in Taro's office in Hawthorne, N.Y.
   


• Amir Rosenthal (Amir), age 28, is Zvi's middle son. From September 2004 to April 2006, Amir was a corporate attorney at a large New York-based law firm.
   


• Oren Rosenthal (Oren), age 30, is Zvi's eldest son. From September 2003 to January 2007, Oren was a litigation associate in the New York and Los Angeles offices of a large California-based law firm.
   


• Ayal Rosenthal (Ayal), age 26, is Zvi's youngest son and a certified public accountant. From 2001 to May 2006, Ayal worked at PwC, first as an auditor and, subsequently, in the Transactions Services Group.
   


• Aragon Partners, LP and Aragon Capital Advisors, LLC (together, Aragon), is a Rosenthal family-owned and controlled hedge fund and investment adviser.
   


• David Heyman (Heyman), age 29, is a certified public accountant. From 1999 to January 2006, Heyman was an E&Y auditor and, ultimately, a senior manager in E&Y's On-Call Consulting Group.
   


• Heyman & Son Investment Partnership LP is a limited partnership and hedge fund with Heyman as its general partner.
   


• Bahram Delshad (Delshad), age 55, is Amir's father-in-law. Delshad is a retired jewelry shop owner.
   


• Young Kim (Kim), age 34, was Amir's supervisor at a large New York-based law firm where he was a corporate attorney in the Structured Finance Group.

The Taro Scheme

In its complaint, the Commission alleged that Zvi, a Vice President at Taro, abused his position at Taro by systematically stealing material, nonpublic information concerning 13 separate company announcements, including earnings results and pending generic drug approvals by the Food and Drug Administration. Typically, Zvi provided information to Amir who traded in personal accounts he controlled, and in Aragon's account. Amir also tipped his brothers, Oren and Ayal; his father-in-law, Delshad; his best friend, Heyman; and his work supervisor, Kim, with information he received from Zvi, and each of them traded. Allegations of the Taro scheme include the following.

• Taro's internal policies specifically prohibited Zvi or any member of his family from trading in Taro securities during specific blackout periods before and after public earnings announcements.
   


• The defendants aggressively traded Taro options instead of Taro stock to maximize their profits on the information Zvi stole from Taro. In some instances, the defendants liquidated stock positions and bought options to maximize profits.
   


• In 2003, Amir created a hedge fund and an unregistered investment adviser, Aragon, to obscure the family's identity and pool money from family members to trade in Taro securities. Amir also used his wife's account to hide the identity of his trades.
   


• Two of the defendants paid kickbacks to Amir in exchange for profitable tips. Heyman gave Amir at least $6,300 in cash to pay for a plasma television. Delshad paid Amir $66,000 in $11,000 installments that Delshad routed through his children.

Insider Trading in Other Securities

In its later stages, certain defendants broadened the scheme to include trading on nonpublic information stolen from entities other than Taro. On at least two occasions, Ayal and Heyman misappropriated material, nonpublic information concerning impending mergers from their respective employers, PwC and E&Y, and tipped Amir with the information. Amir immediately traded on the information using Aragon's account. Amir also tipped Kim with the information from Ayal and Heyman, and Kim traded on the information.

The insider trading scheme generated for the defendants total profits and losses avoided in excess of $3.7 million.

The complaint charges all of the defendants with illegal insider trading in violation of the antifraud provisions of the federal securities laws. In its complaint, the Commission seeks permanent injunctive relief, disgorgement of all illegal profits and losses avoided plus prejudgment interest, and the imposition of civil monetary penalties. The complaint also seeks an officer and director bar against Zvi.

The Commission has reached an agreement with Kim to settle the insider trading charges against him. Kim has consented to a final judgment permanently enjoining him from future violations of the antifraud provisions of the federal securities laws, and ordering him to pay $4,287.71 in disgorgement of his ill-gotten gains plus prejudgment interest, and $41,702.29 in civil penalties. Kim consented to the final judgment without admitting or denying the allegations in the complaint. The Commission will file the proposed judgment with the U.S. District Court in New York, New York for consideration and approval.

The Commission appreciates the cooperation of the United States Attorney's Office for the Eastern District of New York and the Federal Bureau of Investigation in the investigation of this matter.

MBIA Settles Securities Fraud Charges for Misuse of Reinsurance Contracts

The Securities and Exchange Commission announced settled securities fraud charges against MBIA Inc., one of the nation’s largest insurers of municipal bonds, arising out of a sham reinsurance transaction that was restated in 2005, which the company had previously entered into to avoid having to recognize a $170 million loss. MBIA suffered the loss when, in 1998, the Allegheny Health, Education and Research Foundation (AHERF) defaulted on bonds guaranteed by MBIA and MBIA was forced to make good on its guarantee. MBIA addressed analyst concerns about its expected losses on the AHERF bonds by representing that it had obtained reinsurance to cover them. In fact, MBIA had agreed through concessions on other reinsurance agreements to compensate the reinsurers for the losses they were certain to incur on the AHERF contracts. The improper use of the reinsurance contracts enabled MBIA to convert what would otherwise have been the company’s first-ever quarterly loss into a profit and reverse the decline in MBIA’s stock price.

Under the settlement, MBIA consents to a cease-and-desist order, to pay a $50 million penalty, and to retain an independent consultant to examine a number of other specified transactions to which MBIA was a party.

Mark K. Schonfeld, Director of the Commission’s Northeast Regional Office, said, “This case arose out of our industry-wide investigation of the abuse of finite insurance and reinsurance policies to burnish the books of public companies. Here, MBIA purchased a sham reinsurance policy to make a $170 million loss disappear from its financial statements. In fact, MBIA was simply reimbursing its reinsurers the full amount of the covered losses.”

The Commission’s order, issued today, found that MBIA learned in 1998 that AHERF would default on $256 million of municipal bonds that MBIA had guaranteed, which would have resulted in MBIA’s first-ever quarterly loss. To mask the financial effect of this loss, MBIA’s then-senior management devised a scheme to obtain reinsurance that would cover the entire net present value of the anticipated loss, or about $170 million, for a nominal premium. The effect was to offset the entire $170 million loss MBIA recorded in the third quarter with a roughly equivalent reinsurance recovery, thus converting a loss in the quarter to an apparent gain.

The AHERF reinsurance consisted of three contracts under which the reinsurers agreed to provide coverage of up to $170 million for the AHERF loss. In order to pass scrutiny with MBIA’s accountants and obtain their approval for the desired accounting treatment, these contracts were written as if it was unclear whether the reinsurers would have to pay out under them. In fact, however, MBIA and the reinsurers knew that the reinsurers would be called upon to pay, making the $170 million received by MBIA from the reinsurance companies ineligible for reinsurance accounting.

MBIA reimbursed the reinsurers for the $170 million they paid to MBIA by entering into other reinsurance agreements on hundreds of millions of dollars of future MBIA business. Although the reinsurers undertook some risk under these other agreements, they were nevertheless reimbursed for their payments to MBIA on the AHERF contracts because the other agreements entailed so much premium and so little risk to the reinsurers.

In addition, MBIA secretly entered a side agreement with one of the reinsurers whereby it orally agreed to re-assume virtually all of the risk given to the reinsurer on the future business, leaving the reinsurer with all the premiums and virtually no risk.

In March 2005, MBIA restated $70 million related to these agreements, after an internal investigation concluded that it appeared likely that the oral side agreement existed. In November 2005, MBIA restated the remaining $100 million.

In connection with the settlement, MBIA has agreed, without admitting or denying the Commission’s findings, to the issuance of a cease-and-desist order that requires MBIA to cease and desist from further violations of Section 17(a) of the Securities Act of 1933 and Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act of 1934 and Rules 10b-5, 12b-20, 13a-1, 13a-11,13a-13, and 13b2-1 thereunder, and to comply with various undertakings, including an undertaking to retain an independent consultant to examine a number of specified transactions. MBIA has also consented to pay a $50 million penalty, plus $1 in disgorgement. The Commission acknowledges MBIA's cooperation during the Commission's investigation.

The Commission acknowledges the assistance of the New York Attorney General in connection with this matter.

Options Exchanges Begin Penny Quoting Pilot

The Securities and Exchange Commission announced that today the six options exchanges began quoting certain options on Whole Food Market, Inc. (WFMI) in pennies. This important move marks the first time options were quoted in penny increments and represents the beginning of a six-month pilot in which series of 13 options classes will be quoted in pennies.

“While stocks have been quoted in pennies since 2001, options currently are quoted in nickels and dimes,” said SEC Chairman Cox. “Quoting in penny increments has the potential to permit investors to trade options at better prices.”

Last summer, Chairman Cox urged each of the options exchanges to begin quoting a limited number of options in pennies by Jan. 29, 2007. “I thank the options exchanges and their members for putting in the work necessary to prepare for Friday’s milestone,” he said today.

The 13 options classes included in the penny pilot program represent a diverse group of options with varied trading characteristics. The Commission expects the penny quoting in these classes during the pilot to provide it and market participants with valuable information about the impact of pennies on spreads, transaction costs, payment for order flow, and quote message traffic. The knowledge acquired during the pilot will be essential to the Commission’s future decisions regarding penny quoting in options.

Prior to the pilot, none of the nation’s exchanges quoted options in pennies, although certain exchanges’ rules have permitted trading in penny increments at prices better than the public quote. During the penny pilot, options in the 13 pilot classes that are priced below $3.00 will be quoted in pennies; options priced $3.00 and above will be quoted in nickels. All options in the QQQQ will be quoted in pennies.

Each of the exchanges, and the Commission’s Office of Economic Analysis, will analyze the impact of penny pricing on market quality. In addition, because quoting options in pennies is likely to increase quote message traffic, each of the exchanges is implementing strategies designed to reduce the quotations disseminated and will evaluate the impact of penny quoting on quote messages.

The exchanges will roll out the remainder of the 13 options classes in the pilot program over the following two weeks.

• Friday, Feb. 2, 2007:


• General Electric Company (GE)


• Microsoft Corporation (MSFT)
   




• Feb. 9, 2007:


• Agilent Technologies, Inc. (A)


• Advanced Micro Devices, Inc. (AMD)


• Caterpiller Inc. (CAT)


• Flextronics International Ltd. (FLEX)


• Ishares Russell 2000 Index (IWM)


• Intel Corporation (INTC)


• NASDAQ-100 Trust Shares (QQQQ)


• Semiconductor HDLRs (SMH)


• Sun Microsystems, Inc. (SUNW)


• Texas Instruments Incorporated (TXN).

Fred Alger Management and Fred Alger & Company to Pay $40 Million to Settle Market Timing and Late Trading Violations

The Securities and Exchange Commission today announced that Fred Alger Management, Inc. (Alger Management) and Fred Alger & Company, Incorporated (Alger Inc.) will pay $40 million to settle the Commission's charges that the companies allowed market timing and late trading in the Alger Fund. The Commission issued an Order that found Alger Management and Alger Inc. failed to disclose these arrangements to the Board of Trustees of the Alger Fund. Without admitting or denying the Commission's charges, the companies agreed to pay $30 million in disgorgement of ill-gotten gains and a $10 million penalty, all of which will be used to compensate investors.

The Commission's Order finds that from at least 2000 through October 2003, Alger Inc. permitted select investors to market time the Alger Fund, and in 2002, Alger Inc. began to demand that market timers make a 20% sticky asset investment in exchange for timing capacity. Alger Inc. also permitted at least one investor to late trade the Alger Fund.

Mark K. Schonfeld, Director of the SEC's Northeast Regional Office, said, "Alger breached its fiduciary duties when it allowed harmful market timing in exchange for the additional management and other fees generated by the timers' money. In particular, Alger affirmatively attempted to lure timers to its funds by permitting them to time if they agreed to make a sticky asset investment."

Alger Management is a registered investment adviser located in New York, N.Y., that serves as the adviser to the Alger Fund Group mutual fund complex. Alger Inc. is a registered broker-dealer that serves as the principal underwriter and distributor for mutual funds in the Alger Fund Group.

According to the Commission's Order, from at least 2000 through late 2002, Alger Inc. permitted select investors to market time the Alger Fund. Over time, Alger Inc. also began to demand that market timers make sticky asset investments in certain portfolios within the Alger Fund in exchange for timing capacity. In early 2003, Alger Inc. formalized this practice by requiring sales employees to negotiate a sticky asset investment equal to 20% of an investor's funds within the Alger Fund Group mutual fund complex in return for new timing capacity. Several of these arrangements were then negotiated with market timers.

Alger Inc. also permitted one hedge fund customer, Veras Investment Partners (Veras), to engage in late trading of Alger Fund portfolios. Specifically, despite the 4:00 p.m. close of the stock market, Veras' principals requested the ability to enter trades until 4:30 p.m. because their trading model was based on a "signal" from the close of the futures market at 4:15 p.m. Alger's Vice Chairman James P. Connelly, Jr., approved the arrangement, which allowed Veras to trade shares of Alger Fund portfolios after both the stock and futures markets closed but still receive that day's NAV as if the orders had been timely entered before the 4:00 p.m. market close. The Commission previously brought a settled enforcement action against Connelly in October 2003.

Neither Alger Management nor Alger Inc. disclosed these market timing and late trading arrangements to the Alger Fund's Board of Trustees. The market timing in the Alger Fund diluted the value of long-term shareholders' investments. At the same time, Alger Management and Alger Inc. benefited through advisory fees paid to Alger Management and distribution and servicing fees paid to Alger Inc.

As a result of these activities, Alger Management and Alger Inc. violated the antifraud and various other provisions of the Investment Advisers Act, the Investment Company Act, and the Securities Exchange Act of 1934. The Order censures Alger Management and Alger Inc., and directs Alger Management and Alger Inc. to cease and desist from committing or causing any future violations of the provisions referred to above. Further, the Order directs Alger Management and Alger Inc., jointly and severally, to pay disgorgement of $30 million plus a civil money penalty of $10 million. The $40 million will be paid into a Fair Fund to be distributed according to a plan to be developed by an independent distribution consultant. Alger also agreed to retain an independent compliance consultant to review various policies and procedures. Alger Management and Alger Inc. consented to the issuance of the Order without admitting or denying any of the findings in the Order.

The Commission acknowledges the assistance of the New York Attorney General in this matter.

Donald M. Hoerl Named Acting Regional Director of the SEC's Central Regional Office

Securities and Exchange Commission Chairman Christopher Cox today named Donald M. Hoerl as the Acting Regional Director of the SEC's Central Regional Office. The office, located in Denver, Colorado, conducts examination and enforcement activities in Colorado, North Dakota, South Dakota, Utah, Wyoming and New Mexico.

Mr. Hoerl currently serves as the Associate Regional Director for Enforcement in the Central Regional Office - a position he has held since 1997.

Linda Thomsen, the SEC's Director of Enforcement said, "I am very pleased that Don has agreed to serve as Acting Regional Director in our Central Regional Office. He is an excellent lawyer who has played a large role in many of the successful cases brought by the Regional Office over the past several years. I know that Don will continue the SEC's effective enforcement presence in that part of the country. I look forward to working with him in his new role during this interim period."

Director of the Office of Compliance Inspections and Examinations, Lori Richards stated, "Working with the outstanding examination staff in the Denver Office, as well as with the staff of the Salt Lake Office, Don will do an excellent job in maintaining examination oversight of firms in the region for the protection of investors."

Mr. Hoerl said, "I am honored that Chairman Cox has asked me to lead the Central Regional Office until a permanent Regional Director in named. The staff of the regional office has long enjoyed a tradition of excellence and outstanding public service. I look forward to sustaining that tradition in this position."

Prior to his appointment to this post, Mr. Hoerl was the District Administrator of the Commission's Philadelphia District Office for a period of four years and also served as the District Administrator of the SEC's Salt Lake District Office for six years. He began his career with the Commission in 1982 in the Commission's Denver Office as a trial counsel. Before joining the SEC, he was an Assistant United States Attorney in Denver for over five years.

Mr. Hoerl received his B.A. degree from the University of California, Los Angeles and his JD degree from the University of Colorado School of Law.

Donald M. Hoerl Named Acting Regional Director of the SEC's Central Regional Office

Securities and Exchange Commission Chairman Christopher Cox today named Donald M. Hoerl as the Acting Regional Director of the SEC's Central Regional Office. The office, located in Denver, Colorado, conducts examination and enforcement activities in Colorado, North Dakota, South Dakota, Utah, Wyoming and New Mexico.

Mr. Hoerl currently serves as the Associate Regional Director for Enforcement in the Central Regional Office - a position he has held since 1997.

Linda Thomsen, the SEC's Director of Enforcement said, "I am very pleased that Don has agreed to serve as Acting Regional Director in our Central Regional Office. He is an excellent lawyer who has played a large role in many of the successful cases brought by the Regional Office over the past several years. I know that Don will continue the SEC's effective enforcement presence in that part of the country. I look forward to working with him in his new role during this interim period."

Director of the Office of Compliance Inspections and Examinations, Lori Richards stated, "Working with the outstanding examination staff in the Denver Office, as well as with the staff of the Salt Lake Office, Don will do an excellent job in maintaining examination oversight of firms in the region for the protection of investors."

Mr. Hoerl said, "I am honored that Chairman Cox has asked me to lead the Central Regional Office until a permanent Regional Director in named. The staff of the regional office has long enjoyed a tradition of excellence and outstanding public service. I look forward to sustaining that tradition in this position."

Prior to his appointment to this post, Mr. Hoerl was the District Administrator of the Commission's Philadelphia District Office for a period of four years and also served as the District Administrator of the SEC's Salt Lake District Office for six years. He began his career with the Commission in 1982 in the Commission's Denver Office as a trial counsel. Before joining the SEC, he was an Assistant United States Attorney in Denver for over five years.

Mr. Hoerl received his B.A. degree from the University of California, Los Angeles and his JD degree from the University of Colorado School of Law.

James Brigagliano Named Associate Director for Trading Practices and Processing in the SEC's Division of Market Regulation

The Securities and Exchange Commission today announced the appointment of James A. Brigagliano as Associate Director for Trading Practices and Processing in the Commission's Division of Market Regulation. In this position, Mr. Brigagliano will oversee the Division's regulatory program in trading practices, clearance and settlement, and the enforcement liaison function.

Currently serving as Acting Associate Director, Mr. Brigagliano has been the Assistant Director for the Office of Trading Practices since 1998 and has led the implementation of significant reforms that have benefited investors and the capital markets, including rules governing analyst conflicts of interest and regulations to discourage manipulative conduct. Mr. Brigagliano has also worked to promote compliance and increase regulatory efficiency, including, where appropriate, issuance of letters providing relief for entire classes of financial products and market transactions.

SEC Director of Market Regulation Erik Siri commented, "Jamie is a proven manager as well as an energetic and pragmatic lawyer. I look forward to his taking a leadership role in modernizing and administering rules governing trading practices and clearance and settlement."

During his tenure in the Division, Mr. Brigagliano has administered rules addressing market manipulation, underwriting, research, soft dollars, issuer repurchases, over-the-counter quotations, short sales, and tender offers. In addition to leading staff efforts on numerous investor protection rulemakings, including Regulation AC (Analyst Certification) and self regulatory organization rules governing analysts conflicts of interest, Mr. Brigagliano also led the drafting and implementation of Regulation SHO, which implemented a comprehensive revision to the scheme of short sale regulation; an emergency rulemaking project following September 11 that revised Rule 10b-18 temporarily to assist issuers in repurchasing their securities following the reopening of the markets; and proposed amendments to Regulation M to address manipulative conduct during the bubble in technology initial public offerings.

Mr. Brigagliano joined the Division of Market Regulation in 1998. Prior to that he was Assistant General Counsel for Litigation and Administrative Practice in the Commission's Office of the General Counsel. In that capacity, Mr. Brigagliano represented the Commission in a wide range of matters in federal district and appellate courts. Mr. Brigagliano's achievements have earned him numerous Commission awards.

He came to the Commission in 1986 after three years in private practice. Mr. Brigagliano received his law degree from Georgetown and undergraduate degree from Amherst College.