SEC Enforcement Division Produces Record Results in Safeguarding Investors and Markets

Agency’s Fiscal Year Totals Show Most Enforcement Actions Filed in Single Year

FOR IMMEDIATE RELEASE
2011-234

Washington, D.C., Nov. 9, 2011 — The Securities and Exchange Commission today announced that the agency filed a record 735 enforcement actions in the fiscal year that ended September 30. This record number includes many cases involving highly complex products, transactions, and market practices, including those related to the financial crisis as well as insider trading by market professionals.

“We continue to build an unmatched record of holding wrongdoers accountable and returning money to harmed investors,” said SEC Chairman Mary L. Schapiro. “I am proud of our Enforcement Division’s many talented professionals and their efforts that resulted in a broad array of significant enforcement actions, including those related to the financial crisis and its aftermath.”

In 2009 and 2010, the SEC’s Enforcement Division underwent its most significant reorganization since it was established in the early 1970s. In an effort that greatly strengthened its enforcement capacity, the Division flattened its management structure, revamped the way it handles tips and complaints, facilitated the swift prosecution of wrongdoers through a formal program that encourages cooperation from individuals and companies in SEC investigations, and created national specialized units in five priority areas involving complex and higher risk areas of potential securities laws violations, among other things.

In the first complete fiscal year (FY) since these and other reforms took place, markets and investors alike benefited substantially. This is evidenced by the filing of more enforcement actions in FY 2011 than ever filed in a single year in SEC history, and more than $2.8 billion in penalties and disgorgement ordered in FY 2011 SEC enforcement actions.

“The Enforcement Division responded to Chairman Schapiro’s leadership with a record-breaking performance during a period of resource constraints,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “This remarkable accomplishment has its roots in the talent, grit, and determination of the staff, as well as their creativity and willingness to consider new tools and approaches to stopping and deterring fraud and misconduct.”



SEC Approves New Rules to Toughen Listing Standards for Reverse Merger Companies

Washington, D.C., Nov. 9, 2011 — The Securities and Exchange Commission today approved new rules of the three major U.S. listing markets that toughen the standards that companies going public through a reverse merger must meet to become listed on those exchanges.

Currently, reverse merger companies like other operating companies can pay to be listed on an exchange, where investors can purchase and sell shares of the company. In some cases, regulators and auditors have greater difficulty obtaining reliable information from reverse merger companies, particularly those based overseas. Reverse mergers permit private companies, including those located outside the U.S., to access U.S. investors and markets by merging with an existing public shell company.

In summer 2010, the SEC launched an initiative to determine whether certain companies with foreign operations – including those that were the product of reverse mergers – were accurately reporting their financial results, and to assess the quality of the audits being done by the auditors of these companies. The SEC and U.S. exchanges have in recent months suspended or halted trading in more than 35 companies based overseas citing a lack of current and accurate information about the firms and their finances. These included a number of companies that were formed by reverse mergers. In June, the SEC issued an investor bulletin warning investors about companies that engage in reverse mergers.

“Placing heightened requirements on reverse merger companies before they can become listed on an exchange will provide greater protections for investors,” said SEC Chairman Mary L. Schapiro.

Under the new rules, Nasdaq, NYSE, and NYSE Amex will impose more stringent listing requirements for companies that become public through a reverse merger. Specifically, the new rules would prohibit a reverse merger company from applying to list until:

• The company has completed a one-year “seasoning period” by trading in the U.S. over-the-counter market or on another regulated U.S. or foreign exchange following the reverse merger, and filed all required reports with the Commission, including audited financial statements.
   
• The company maintains the requisite minimum share price for a sustained period, and for at least 30 of the 60 trading days, immediately prior to its listing application and the exchange’s decision to list.

Under the rules, the reverse merger company generally would be exempt from these special requirements if it is listing in connection with a substantial firm commitment underwritten public offering, or the reverse merger occurred long ago so that at least four annual reports with audited financial information have been filed with the SEC.

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http://www.sec.gov/news/press/2011/2011-235.htm

On August 12, 2011, the United States Securities and Exchange Commission enacted Regulation 21F under Section 21F of the Securities Exchange Act of 1934, entitled “Securities Whistleblower Incentives and Protection.”  Section 21F directs that the Commission pay awards, subject to certain limitations and conditions, to whistleblowers who voluntarily provide the Commission with original information about a violation of the securities laws that leads to the successful enforcement of an action brought by the Commission that results in monetary sanctions exceeding $1,000,000.

December 6, 2007

In the pursuit of making restricted securities more liquid, and reducing the cost of raising capital without compromising investor protection, the U.S. Securities and Exchange adopted amendments to Rule 144 to reduce the holding period of restricted securities of reporting companies held by non-affiliates from 1 year to 6 months.

January 15, 2008

The United States Supreme Court ruled today in a high profile opinion that victims of securities fraud may not bring a lawsuit against alleged perpetrators of the fraud who may have assisted in the fraud but who did not make statements or representations upon which the investors relied.  These types of alleged perpetrators are considered secondary actors who aid and abet.  While the Securities and Exchange Commission or other governmental agencies may pursue remedies or sanctions against these secondary actors, the Court ruled that private litigants can not.  The ruling allows non-issuers and non-participants in securities related activities to be insulated from exposure, although assisting perpetrators in wrongdoing.