SEC News Digest, 06-21-2000
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, SEC NEWS DIGEST Issue 2000-118 June 21, 2000 COMMISSION ANNOUNCEMENTS OPEN MEETING - TUESDAY, JUNE 27, 2000 - 10:00 A.M. The subject matter of the open meeting scheduled for Tuesday, June 27, at 10 00 a.m will be: The Commission will consider whether to propose rule amendments to its auditor independence requirements The proposals are intended to modernize the Commission's regulations regarding: (1) investments by auditors or their family members in audit clients; (2) employment relationships between auditors or their family members and audit clients; and (3) the scope of services provided by audit firms to their audit clients. In addition, the rules would require companies to disclose in their annual proxy statements certain information about non-audit services provided by their auditors during the last fiscal year. For further information, please contact John Morrissey or W. Scott Bayless at (202) 942- 4400. CLOSED MEETING - WEDNESDAY, JUNE 28, 2000 - 11:00 A.M. The subject matter of the closed meeting scheduled for Wednesday, June 28, at 11 00 a.m will be: Institution and settlement of injunctive actions; and Institution and settlement of administrative proceedings of an enforcement nature. At times, changes in Commission priorities require alterations in the scheduling of meeting items. For further information and to ascertain what, if any, matters have been added, deleted or postponed, please contact. The Office of the Secretary at (202) 942- 7070. ENFORCEMENT l'ROCEEDINGS FOUR INDIVIDUALS SANCTIONED FOR INVESTMENT ADVISER FRAUD On June 20, the Commission entered a settled administrative order (Order) imposing sanctions against James L Foster, his wife, Laurie F. Foster, Steven M. Bolla, and William E. Busacker, Jr. Pursuant to the Order, James Foster was barred from association with any investment adviser; Bolla was barred from association with any investment adviser, with the right to reapply for association after five years; Laurie Foster was barred from association with any investment adviser or broker-dealer with a right to reapply for association after three years; and Busacker was suspended for a period of twelve months from association with any investment adviser and any broker- dealer The Order finds that on June 19 a final judgment was entered against the Fosters, Bolla, and Busacker in Securities and Exchange Commission v. James L. Foster, et al., Civil Action No. 1:OOCVOI192, D.D.C. As a result of that final judgment, the Fosters, Bolla, and Busacker were permanently restrained and enjoined from directly or indirectly violating: Sections 204 and 206 (1), (2), and (4) of the Advisers Act and Rules 204- 2(aX3), (c)(l) and (c)(2), and 206(4)-2(a)(I) through (5) thereunder; Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 (Securities Act), and Section 1O(b) of the Exchange Act and Rule 10b-5 thereunder. In addition, James Foster, Laurie Foster, and Bolla were permanently restrained and enjoined from directly or indirectly violating Section 206(4) of the Advisers Act and Rule 206(4)-I(a)(5) thereunder. Each of the Respondents consented to entry of the final judgment without admitting or denying any violations of the federal securities laws, or any of the allegations set forth in the Commission's oompIaint, except as to the subject matter and III personam jurisdiction. The Commission's complaint alleges that, between early 1995 and October 1996, the defendants defrauded their investment advisory clients by failing to disclose their switch from a conservative investment approach to a high-risk strategy involving short-selling of high-technology stocks The defendants also failed to disclose that, contrary to express representations, Laurie Foster and Busacker were paid commissions on trades. The complaint also alleges that the Fosters arbitrarily assigned values to client accounts, that the defendants mailed false account statements to clients that contained baseless account values, and that certain clients were unfairly favored over others in distributions. In addition, the Fosters and Bolla prepared and distributed a brochure entitled "Investing in the Nineties At a Glance" which misrepresented that they were engaged in a conservative investment strategy, and included false historical performance data. The complaint also alleges that the defendants sold unregistered securities to their clients in the form of the advisers' in-house managed investment funds. 2 NEWS DIGEST, June 21,2000 For further information, see Litigation Release Numbers 15297 and 15436 and Sec v. James L. Foster, et al., Civil Action No 00Civ.01192, D.D.C., LR-16567. (Rels IA- 1881; 34-42963, File No. 3-10236) THREE MORE TRADERS SETTLE LOTUS INSIDER TRADING CHARGES The Commission today announced that three more traders have agreed to settle Commission charges that they engaged in insider trading in advance of IBM's takeover of Lotus Development Corporation Specifically, Isaac Lederman has agreed to pay (i) disgorgement of $143,286 (representing his trading profit of $47,463 and the trading profits of two individuals he tipped) plus $66,384 in prejudgment interest, jointly and severally with his tippees, and (ii) a civil penalty of $143,286. Samuel G Lederman, one of I. Lederman's tippees, has agreed to disgorge his trading profit of $47,463 plus $22,760 in prejudgment interest and to pay a civil penalty of $47,463. Jonah Rosenblatt has agreed to a final judgement holding him liable for disgorgement of $467,990 (representing the profits from trading he allegedly caused) plus prejudgment interest, but payment of disgorgement was waived and a penalty was not imposed, based upon Rosenblatt's inability to pay. I. Lederman, S. Lederman and Rosenblatt have further consented to the entry of permanent injunctions prohibiting future violations of Section 14(e) of the Securities Exchange Act of 1934 and Rule 14e-3 thereunder Moreover, S. Lederman and Rosenblatt, both stockbrokers, have agreed to be barred from the securities industry, with rights to reapply after five and three years, respectively In consenting to the entry of relief, the defendants neither admitted nor denied the Commission's substantive allegations against them. The Commission filed this matter on May 26, 1999, charging a total of twenty-five individuals with insider trading in Lotus call options and common stock on the basis of inside information misappropriated from IBM by one of its secretaries Eleven of the twenty-five defendants in this case have now reached settlements with the Commission The Commission is continuing to litigate against the remaining defendants [SEC v Lorraine K. Cassano, Civil Action No. 99-CV-3822, SDNY] (LR-16599) SEC ORDERS WASTE MANAGEMENT, INC. TO CEASE AND DESIST FROM VIOLATING THE ANTIFRAUD, BOOKS AND RECORDS, AND INTERNAL CONTROLS PROVISIONS OF THE SECURITIES EXCHANGE ACT The Commission today brought and settled administrative fraud charges against Waste Management, Inc (WMI) for making materially false and misleading forecasts of its second quarter 1999 earnings. WMI was also charged for violation of the books and records and internal controls provisions of the securities laws. Without admitting or denying the charges, WMI consented to the issuance of an order that it cease and desist from committing or causing such violations in the future WMI, based in Houston, Texas, is engaged in the collection, transportation, and disposal of solid waste for residential, commercial, and industrial customers 3 NEWS DIGEST, June 21,2000 The Commission's Order states that on June 9, 1999, WMI publicly forecasted that it would mm between $ 78 to $.81 per share for its second quarter which was to end June 30, 1999. The June 9 forecast was a reiteration of projections that WMI had made earlier in the year. The Commission found that by at least June 9 WMI was aware of significant adverse trends in its business that made its continued public support of the projections unreasonable. On July 6, 1999, WMI announced that it anticipated a revenue shortfall for the second quarter of approximately $250 million versus its internal budget, and that it expected earnings to be in the range of $.67 to $.70 per share. On July 7, 1999 the company's share price went from $53.56 to $33.94 per share. On August 3, 1999~ WMI announced that its actual earnings for the second quarter were only $.58 per share. By August 4, the company's share price had retreated to $22.25 per share. According to the Order, as the second quarter of 1999 progressed, WMI began to suffer severe setbacks In addition, the Order finds that WMI attempted to convert to a new accounting, billing and management information system and that the new system had been unable to generate accurate and timely financial information. The Commission found that by June 9,1999, the date that WMI reiterated its favorable earnings forecast, WMI had the following adverse information at its disposal: I. By the end of May, internal estimates from senior field managers showed earnings shortfalls in WMI's North 'American solid waste business; II. In early June, WMI had rolled back certain price increases that it bad implemented at the end of the first quarter 1999; III. Delays and other difficulties in the conversion of the accounting and billing systems had led to an increase in accounts receivable balances; IV. Tbe volume of solid waste entering WMI's domestic and Canadian landfills had decreased. The Commission's Order further finds that under the circumstances, WMI knew or was reckless in not knowing that the projections provided to the market on June 9, 1999 for its second quarter lacked a reasonable basis. The Commission Order points out that WMI had an inadequate billing, accounting and management information system. According to the Order, WMI's management information system failures rendered the June 9 earnings forecast even more unreasonable because it should have been clear that WMI simply could not generate information from which responsible forecasts could be made.