Securities Industry Commentator by Bill Singer Esq

November 26, 2019

featured in today's Securities Industry Commentator:

Manhattan U.S. Attorney Announces Charges Against Austin Man For Computer Hacking And Fraud Scheme To Steal Unreleased Music From Music Industry Professionals (DOJ Release)

SEC Consolidates Second Tranche of FINRA Appeals Over Ineligible ExpungementsIn the Matter of the Consolidated Arbitration Applications for Review of Action Taken by FINRA (SEC Order Consolidating Appeals)

Pro Se Plaintiff's Case Dismissed Against FINRA and former CEO/Chair Ketchum. Sam Balabon, Spot Quote Holdings, Incorporated, Plaintiffs/Appellants, v. Richard Ketchum, Erin Vocke, Financial Industry Regulatory Authority, Incorporated, Defendants/Appellees (Opinion, 5Cir.)

FINRA Arbitration Panel Awards Damages to Charles Schwab for Dishonored Check in Customer's Account. In the Matter of the Arbitration Between Charles Schwab & Co., Inc, Claimant/Counter-Respondent, v. Terence Daniels, Respondent/Counter-Claimant (FINRA Arbitration Decision)

SEC Charges Man for Defrauding Elderly Investors (SEC Release)

SEC Charges Former Top Executives of Healthcare Advertising Company With $487 Million Fraud (SEC Release)

SEC Charges Unregistered Broker Who Sold Woodbridge Securities to Retail Investors (SEC Release)

Alleged Fraudster Sentenced to 2 Years in Parallel Criminal Case (SEC Release)
The poet e. e. cummings famously asked what if a much of a which of a wind gives the truth to summer's lie; bloodies with dizzying leaves the sun and yanks immortal stars awry? The poet's dark question prompts us to muse about the wind that blows as so much hot air through a FINRA Arbitration Decision and a federal court's review. In the end, all is awry. We are left bloodied and dizzy for the experience.

Manhattan U.S. Attorney Announces Charges Against Austin Man For Computer Hacking And Fraud Scheme To Steal Unreleased Music From Music Industry Professionals (DOJ Release)
In a Superseding Indictment filed in the United States District Court for the Southern District of New York, Christian Erazo, 27, was charged with one count each of conspiracy to commit wire fraud, conspiracy to commit computer intrusion, and aggravated identity theft. , which carries a mandatory minimum term of imprisonment of two years.  As alleged in part in the DOJ Release:

From at least in or about late 2016 through at least in or about April 2017, CHRISTIAN ERAZO, the defendant, and others known and unknown, unlawfully obtained unauthorized access to Internet cloud storage service accounts of two music management companies and a music producer ("Producer Victim-1") by, among other things, using the credentials, or usernames and passwords, of individuals with authorized access to those accounts.  From those accounts, ERAZO and his co-conspirators stole over approximately 50 gigabytes of music, including music that had not yet been publicly released from over 20 recording artists, as well as usernames and passwords to other online accounts, among other things.  ERAZO and his co-conspirators also leaked on public online forums music that had not yet been publicly released, causing financial and reputational harm to Producer Victim-1 and other recording artists.

In addition, from at least in or about late 2016 through at least in or about late 2017, CHRISTIAN ERAZO, and others known and unknown, unlawfully accessed without authorization a social networking account belonging to Producer Victim-1, from which ERAZO and a co-conspirator ("CC-1") impersonated Producer Victim-1 and sent private messages to numerous recording artists to solicit music from them that they had not yet released.  ERAZO and CC-1 directed these artists to send their music to a fake email account that ERAZO created that incorporated Producer Victim-1's professional name, which numerous artists did.
After FINRA denied the expungement requests citing "ineligibility," associated persons Jordan Whitney Waring, Kent Vincent Pearce, Vincent H. Rossi, Michael Patrick Murphy, Scott Shulman, and Alton Theodore Davis, Jr. (the "Pearce Applicants") filed Applications for Review with the SEC. Previously, the SEC consolidated 12 proceedings raising a similar challenge to FINRA's declination of permitting associated persons of member firms to use FINRA's arbitration forum to seek expungement of prior adverse arbitration awards arising from customer disputes per the Bart Steven Kaplow, Exchange Act Release No. 18877, 2019 WL 1489709, at *2 (Apr. 4, 2019) (the "Kaplow Order"). In response to a FINRA motion to consolidate the Pearce Applicants' appeals with those of the applicants covered in the Kaplow Order, the SEC grants the motion. The SEC Order Consolidating Appeals notes, in part that [Ed: footnotes omitted]:

Although Pearce does not object to consolidation or postponement, he states that his counsel "does not represent" the applicant in Kaplow, and that he reserves "the right to further address any issues of jurisdiction" and to "participate" in any proceeding "that is related in any way to, or has any effect upon," his application for review. The consolidation of Pearce's application for review with the Consolidated Arbitration Applications does not limit those rights. Nor has Pearce identified how postponement of further briefing in his case would prejudice him.

In any event, the Kaplow Order did not say that the Commission would decide the jurisdictional issue based on the briefs in Kaplow alone or that other applicants would be denied participation. Rather, we set forth a procedure for the parties to review the briefs filed to that point in all of the consolidated cases, and invited supplemental briefs on arguments "not otherwise addressed." This procedure reflected that some "counsel do not represent other applicants," and that the filing of materially identical briefs by "the same law firm" was not likely to "aid the Commission's decisional processes." 

FINRA asks us to "follow a similar procedure here"-a request the Applicants have not addressed. We agree with that approach, and reiterate that the Commission will decide the issue of its jurisdiction based on all submissions filed in the Consolidated Arbitration Applications. Accordingly, we direct the Applicants' attention to the Kaplow Order regarding procedures for filing supplemental briefs. The Applicants may move for leave to file such a brief under Rule of Practice 154 by December 16, 2019, appending their proposed brief to the motion, or may instead rely on the briefs filed thus far in the consolidated proceeding.
Sam Balabon owns Spot Quote Holdings, Inc. ("Spot Holdings") and Spot Quote LLC, the latter of which is a FINRA broker-dealer. After having been warned by FINRA that he could only sell securities through the FINRA entity, Balabon informed the self-regulator that he believed its order was illegal and he would not comply. Balabon filed a pro se lawsuit in the United States District Court for the Western District of Texas ("WDTX") asserting tortious interference and unlawful discrimination. In part, the Report and Recommendation of the United States Magistrate Judge states that:

[B]alabon alleges that his company Spot LLC obtained its broker-dealer and alternative trading system licenses in 2006. However, Spot LLC never conducted any business, as it was unable to raise the necessary capital. In 2012, Balabon alleges that he argued-for unstated reasons-with the Dallas office District Director, and felt threatened by the argument; he then complained to the CEO about this treatment. Balabon claims that the District Director thereafter "set out to punish" him. Dkt. No. 9 at 48. FINRA began an investigation of Spot LLC in 2013, which included "interrogat[ing]" Balabon. Id. at 49. At this point, FINRA also began asking questions about Spot Holdings-which was not a member of FINRA. After the investigation, FINRA informed Balabon that he was not permitted to sell Spot Holdings securities directly to investors, and must instead sell them through Spot LLC-a FINRA member. Then again in 2016-after Spot LLC allegedly was approved to sell private placements-Balabon was reminded that he was required to sell Spot Holdings securities through Spot LLC. Balabon contends that this order is illegal, as "[t]here is no FINRA Rule that permits FINRA to interfere with the corporate matters of affiliated companies of broker-dealers." Id. at 59. He therefore brought suit.

Balabon asserts three causes of action against the defendants. First, he alleges that FINRA discriminated against him by assessing fines based on his company's financial information, as opposed to uniform fines. Next, Balabon contends that FINRA tortiously interfered with his business by ordering that Spot Holdings-which is not a member of FINRA-could only distribute stocks through a FINRA-member company. He claims that this requirement is a fake regulation, and thus, enforcement is illegal. Finally, Balabon asserts that FINRA tortiously interfered with his business by ordering a third party to cancel a clearing agreement with Spot Holdings on the basis of the allegedly fake regulation.

WDTX dismissed for lack of jurisdiction citing the need to exhaust the administrative remedies provided under the '34 Act; e.g., appeal through FINRA to the SEC; and, thereafter, to a federal Court of Appeals. In part, WDTX found that:

[B]alabon's claims that FINRA detrimentally affected his companies' ability to reach their potential value are insufficient to support a finding of irreparable injury. As such, Balabon has failed to exhaust his administrative remedies prior to filing suit, and his claims should be dismissed.

On appeal to the 5Cir, that Court affirmed WDTX's dismissal, and the appellate court noted, in part, that:

Balabon appealed.1 But his opening brief does not challenge the district court's ruling that it lacked subject matter jurisdiction. The closest Balabon comes is arguing that this case involves a "substantial constitutional issue." At first blush, that could be viewed as an argument for district court jurisdiction. In limited circumstances, a plaintiff may avoid a scheme channeling review to an agency, followed by judicial review in the court of appeals, by agency's action and outside its expertise. See Thunder Basin Coal Co. v. Reich, 510 U.S. 200, 212-13 (1994). But even a liberal construction of Balabon's brief confirms that his constitutional argument relates to regulatory immunity, not subject matter jurisdiction. This section of Balabon's brief contends, for example, that "[b]ased on the Eleventh Amendment, FINRA is not a state or governmental agency, and therefore does not enjoy the protection of sovereign immunity." 

Although pro se, Balabon is still required to brief an issue in order to preserve it for appellate review. Davison v. Huntington Ingalls, Inc., 712 F.3d 884, 885 (5th Cir. 2013). Because Balabon failed to address the jurisdictional ground on which his case was dismissed, he has abandoned his appeal. United States v. Arledge, 873 F.3d 471, 472-73 (5th Cir. 2017). 

= = = = =

Footnote 1:  Balabon, a nonlawyer, represented Spot Holdings and Spot in district court despite the need for a business to have counsel to litigate in federal court. See Rowland v. Cal. Men's Colony, Unit II Men's Advisory Council, 506 U.S. 194, 201-02 (1993) ("It has been the law for the better part of two centuries . . . that a corporation may appear in the federal courts only through licensed council."). He also filed a notice of appeal on behalf of himself and his two companies. After this court informed Balabon that he could not represent Spot Holdings and Spot on appeal, he retained counsel for those entities. Counsel then filed a brief for those entities adopting Balabon's pro se brief. Later on, Spot dismissed its appeal which is why this appeal just includes Balabon and Spot Holdings as appellants. We have not resolved "whether the filing of the corporation's notice of appeal by someone who is not an attorney is sufficient to deprive this Court of its jurisdiction to consider the appeal." In re K.M.A., Inc., 652 F.2d 398, 399 (5th Cir. Unit B July 1981) (per curiam); but see Insituto de Educacion Universal Corp. v. U.S. Dep't of Educ., 209 F.3d 18, 22 (1st Cir. 2000) ("[A] corporate officer may sign and file a notice of appeal on behalf of the corporation, as long as the corporation then promptly retains counsel to . . . prosecute the appeal."); In re Bigelow, 179 F.3d 1164, 1165 (9th Cir. 1999) (same). 

We again need not decide whether the filing of a business's notice of appeal by a nonlawyer is a jurisdictional defect. Regardless of whether Spot and Spot Holdings filed a valid notice of appeal, Balabon did as in individual who can appear pro se. But in his brief, Balabon failed to challenge the district court's exhaustion ruling, which it treated as a jurisdictional problem. Without us having to decide whether the failure to go through the FINRA administrative process is a jurisdictional problem, Balabon waived any challenge to the district court's jurisdictional ruling by failing to brief it. We thus must affirm the district court's dismissal for lack of jurisdiction and need not explore whether the problem with the business's notice of appeal poses a separate ground for dismissing the case.

In a FINRA Arbitration Statement of Claim filed in January 2019, FINRA member firm Charles Schwab asserted breach of contract against public customer Respondent Daniels, who generally denied the allegations, asserted various defenses, and filed a Counterclaim asserting breach of contract. Claimant sought $85,081.15 in compensatory damages per an unsecured debit balance in Respondent's account plus interest, costs, and fees. In his Counterclaim, Daniels sought the reinstatement of his account plus $89,865.16 in reimbursed losses.

As set forth in part in the FINRA Arbitration Decision:

[T]he cause of action relates to Claimant's allegation that Respondent breached the terms of the parties' agreement when he deposited a check in his account, withdrew funds by wire transfer and debit card purchases using the provisional credit he was given, and then refused to return the withdrawn funds to Claimant after he learned the check would not be honored.

In his Counterclaim, Daniels claimed that Schwab had:

reneged on the parties' agreement to protect or otherwise prevent the possibility of overdraft of funds and that FINRA Office of Dispute Resolution Arbitration No. 19-00144 Award Page 2 of 5 Claimant's SchwabSafe guarantee was loosely enforced as a matter of their own interest in the recovery of funds lost as a result of suspicious activity within the banking process. 

The FINRA Arbitration Panel found Respondent Daniels liable and ordered him to pay to Claimant Schwab $85,081.15 in compensatory damages plus interest and $1,000 in reimbursed FINRA filing fee.
In a Complaint filed in the United States District Court for the District of Arizona, the SEC charges Conrad Coggeshall with violations of the antifraud provisions of Section 17(a) of the Securities Act and Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder; and the federal regulator seeks a permanent injunction, disgorgement, prejudgment interest, and civil money penalties against Coggeshall and disgorgement and prejudgment interest from Relief Defendant Business Owners Tax Relief. As alleged in part in the SEC Release:

[C]onrad Coggeshall of Scottsdale, Arizona told investors that they were investing in Business Owners Tax Relief, LLC, a successful mergers and acquisitions firm based in New York that would pay investors periodic interest at fixed rates. Instead, the complaint alleges that no such firm existed and Coggeshall deposited investors' funds into brokerage and bank accounts for an Arizona company he owns with the same name. Coggeshall allegedly used those funds to trade securities, incurring significant losses, and to pay personal expenses, including the rent for his apartment. The complaint further alleges that Coggeshall also used funds from these accounts to make payments to investors, which he falsely represented were interest payments from the New York mergers and acquisitions firm.

After pleading guilty in the United States Attorney for the Southern District of New York, Lisa Bershan, 62, was sentenced to 7 years in prison plus five years of supervised release; and she was ordered to forfeit $2,926,702.54 and to make restitution in the amount of $2,926,702.54. Previously, co-Defendant Barry Schwartz pled guilty and awaits sentencing, and co-Defendant Joel Margulies was convicted after a seven-day jury trial and awaits sentencing. As alleged in part in the DOJ Release:

The All American Pet Company Fraud Scheme

From October 2013 through May 2017, BERSHAN, Joel Margulies, and a co-conspirator raised more than $575,000 in purported loans for the All American Pet Company ("AAPT"), a penny-stock company that produced, marketed, and sold food bars and other products for dogs, based on the following misrepresentations, among others: (a) that the Internal Revenue Service ("IRS") had accepted an "offer in compromise" from AAPT that significantly reduced the back taxes AAPT owed to the IRS; (b) that BERSHAN had paid to the IRS the amount of this offer in compromise and had thus absolved AAPT of its outstanding tax liability; (c) that BERSHAN was the beneficial owner of a bank account containing over $6.9 million; (d) that BERSHAN would personally guarantee some of the loans; and (e) that Nestle USA had proposed various business deals with AAPT.  BERSHAN held herself out as president and chief executive officer of AAPT at various times. 

Although BERSHAN and her co-conspirators had promised investors that they would use the loans to help improve AAPT's manufacturing and distribution capacities, the conspirators instead used those funds largely for their personal expenses, including the rental of a luxury villa in the Bel Air neighborhood of Los Angeles where all three of them lived.

In connection with the AAPT fraud scheme, BERSHAN used the stolen identities of three individuals - an IRS employee, a Nestle Purina employee, and a Manhattan attorney - to create false and fraudulent letters that were sent to AAPT investors to induce them to make loans to AAPT.

The Starship Snack Corporation Fraud Scheme

From approximately August 2015 through August 2017, BERSHAN, Margulies, and a co-conspirator, Barry Schwartz, raised more than $2.3 million from investors in a company originally called the Awake Company and later renamed Starship Snacks Corporation ("Starship"), which purported to be in the business of developing and manufacturing caffeinated snack products, based on the following misrepresentations, among others: (a) that investments in Starship were guaranteed against losses by BERSHAN; (b) that Starship was going to be acquired by Monster Beverage ("Monster") in a one-for-one stock exchange; (c) that Starship was engaged in actual product development and had procured samples of candies infused with caffeine; (d) that BERSHAN and others at Starship had entered into non-disclosure agreements with Monster that prohibited them from discussing Starship's purported acquisition by Monster and its purported product development.  BERSHAN held herself out as the chief executive officer, president, and founder of Starship. 

After receiving funds from Starship investors, BERSHAN and her co-conspirators used those funds to maintain their own extravagant lifestyles, spending hundreds of thousands of dollars on things like luxury clothing, plastic surgery, interior decorating, the rental of a high-end apartment in New York City, and the down payment for a multimillion-dollar house in Florida. 

Money Laundering, Illegal Receipt of a Firearm, and Distribution of Narcotics

In addition to the fraud and identity theft charges set forth above, BERSHAN was sentenced for money laundering in connection with the AAPT and Starship schemes.  She was also sentenced for illegally receiving a firearm and ammunition in New York that her co-conspirator, Margulies, sent to her from Tennessee via commercial courier.  Neither BERSHAN nor Margulies held federal firearms licenses that would have allowed them to effect such a transfer legally.  Finally, BERSHAN was also sentenced for conspiring to distribute cocaine from October 2015 through August 2017, during which conspiracy BERSHAN caused quantities of cocaine to be sent to her and Margulies via commercial courier in interstate commerce.


SEC Charges Former Top Executives of Healthcare Advertising Company With $487 Million Fraud (SEC Release)

In a Superseding Indictment filed in the United States District Court for the Northern District of Illinois, charges were filed against:
  • Rishi Shah (Co-Founder/Chief Executive Officer of Outcome Health f/k/a ContextMedia
  • Shradha Agarwal (Co-Founder/President of Outcome Health)
  • Brad Purdy (Chief Operating Officer and Chief Financial Officer of Outcome Health)
  • Ashik Desai (Executive Vice President of Business Operations / Chief Growth Officer of Outcome Health)
Previously charged in the initial Indictment were:
  • Kathryn Choi (Senior Analyst at Outcome Health)
  • Oliver Han (Analyst at Outcome Health)
As alleged in part in the DOJ Release:

[F]rom 2011 to 2017, the former executives and employees of Outcome, a digital provider of medical information and advertising in doctors' offices, sold tens of millions of dollars of advertising inventory that did not exist.  This allegedly resulted in inflated financial statements that the former executives used to raise nearly $1 billion in debt and equity financing in 2016 and 2017.  Shah, Agarwal and Purdy are each charged with various counts of mail fraud, wire fraud and bank fraud.  Purdy is also charged with one count of false statements to a financial institution, and Shah is also charged with two counts of transactions in criminal proceeds.  Desai is charged with one count of wire fraud.  Choi and Han are each charged with one count of conspiracy to commit wire fraud.

According to the allegations, the former executives and employees perpetrated a fraudulent scheme by selling clients-most of whom were pharmaceutical companies-advertising inventory the company did not have and then under-delivering on its advertising campaigns.  Despite these under-deliveries, the company allegedly still invoiced its clients as if it had delivered in full.  To conceal the under-deliveries, the former executives and employees allegedly falsified affidavits and proofs of performance to make it appear the company was delivering advertising content to the number of screens in its clients' contracts, and also inflated patient engagement metrics regarding how frequently patients engaged with Outcome's tablets.  Furthermore, Desai allegedly altered a number of studies presented to clients to make it appear that the campaigns were more effective than they actually were.

The charging documents also allege that the under-delivery resulted in a material overstatement of Outcome's revenue for the years 2015 and 2016.  The company's outside auditor signed off on the 2015 and 2016 revenue numbers because Purdy, Desai, Choi and Han allegedly fabricated data to conceal the under-deliveries from the auditor.  Shah, Purdy and Agarwal then allegedly used the inflated revenue figures in Outcome's 2015 and 2016 audited financial statements to raise $110 million in debt financing in April 2016, $375 million in debt financing in December 2016 and $487.5 million in equity financing in early 2017.  The $110 million debt financing allegedly resulted in a $30.2 million dividend to Shah and a $7.5 million dividend to Agarwal; the $487.5 million equity financing allegedly resulted in a $225 million dividend to Shah and Agarwal.

In an amended Complaint filed in the United States District Court for the Northern District of Illinois, the SEC alleged that Outcome Health's former executives, Chief Executive Officer Rishi Shah, President Shradha Agarwal, Chief Financial Officer Brad Purdy, and Executive Vice President Ashik Desai engaged in a fraudulent scheme to misrepresent the company's business successes while raising hundreds of millions of dollars from unsuspecting investors.  In a parallel action, criminal charges were filed against Shah, Agarwal, Purdy and Desai as well as two employees who are not named in the SEC's action.  As alleged in part in the SEC Relase:

Outcome Health charges pharmaceutical company clients to display ads in doctors' offices, and the amended complaint alleges the defendants were aware of or engaged in a scheme to bill clients and recognize revenue for ads it never ran. The amended complaint also alleges that Outcome Health manipulated third-party studies to conceal problems delivering ads and make them appear more effective than they were. Outcome Health is alleged to have overstated its revenue in its audited financial statements for 2015 and 2016 by at least $14.3 million and $30 million, respectively, while raising approximately $487 million from a private offering to investors who relied on the false financial statements and false representations about the company's growth. Nearly half of the funds raised went to Shah and Agarwal, Outcome Health's co-founders.
In a Complaint filed in the United States District Court for the Central District of California, the SEC charged Woodbridge Group of Companies LLC's external sales agent Brett Pittsenbargar and his wholly owned MGM Home Remodeling LLC f/k/a BP Financials, LLC d/b/a BP Financials & Tax Design Group with violating the registration provisions of Sections 5(a) and 5(c) of the Securities Act and Section 15(a)(1) of the Securities Exchange Act  and seeks disgorgement of ill-gotten gains, prejudgment interest, and financial penalties. As alleged in part in the SEC Release:

The SEC previously charged Woodbridge and its former owner, Robert H. Shapiro, and 19 of Woodbridge's other highest-earning unregistered brokers with allegedly stealing over a billion dollars from thousands of retail investors, many of them seniors, as part of a massive Ponzi scheme. In January 2019, a federal court in Florida ordered Woodbridge, its related companies, and Shapiro to pay a combined $1 billion for operating this Ponzi scheme. The SEC also charged Woodbridge's two former directors of investments for their roles in the scheme.

According to the SEC's complaint, from at least November 2012 to December 2016, Pittsenbargar and his alter-ego company, MGM Home Remodeling LLC f/k/a BP Financials, LLC d/b/a BP Financial & Tax Design Group (BP Financials), raised more than $18 million by selling Woodbridge securities in unregistered transactions to at least 45 retail investors located in at least four states. Pittsenbargar was not registered with the SEC and allegedly received approximately $1 million in transaction-based compensation.

Alleged Fraudster Sentenced to 2 Years in Parallel Criminal Case (SEC Release)
As alleged in part in the SEC Release:

The last of the three alleged perpetrators that the SEC charged with conducting a Ponzi-like scheme that raised more than $345 million from over 230 investors across the United States, Cameron R. Jezierski, has been sentenced in a parallel criminal case. The court ordered Jezierski to serve 2 years in prison and an additional year of home confinement, and also ordered him to pay forfeiture of $116,435 and restitution of $45,093,384.

The criminal charges against Jezierski stem from the same misconduct alleged in the SEC's complaint, filed on September 13, 2018 in federal district court in Baltimore, and subsequently amended on November 6, 2018. From at least 2013 to 2018, Jezierski and co-defendants Kevin B. Merrill and Jay B. Ledford allegedly attracted investors by making false statements about how investors' money would be used and propped up their misstatements by creating sham entities and fraudulent documents. Rather than use investor funds to acquire and service debt portfolios as promised, the amended complaint alleges that defendants used the money to make Ponzi-like payments to investors and to fund Merrill's and Ledford's extravagant lifestyles. Both Merrill and Ledford pled guilty and were sentenced to 22 years and 14 years of incarceration, respectively.

The Securities and Exchange Commission proposed a new rule
designed to enhance the regulation of the use of derivatives by registered investment companies, including mutual funds, exchange-traded and closed-end funds, as well as business development companies. As asserted in part in the SEC Release:

[P]roposed new rule 18f-4, an exemptive rule under the Investment Company Act of 1940 (the "Act"),would permit mutual funds, exchange-traded funds ("ETFs"), registered closed-end funds, and business development companies (collectively, "funds")to enter into derivatives transactions and certain other transactions notwithstanding the restrictions under section 18 of the Act.

The Commission also proposed new sales practice rules-rule 15l-2 under the Securities Exchange Act of 1934 and rule 211(h)-1 under the Investment Advisers Act of 1940-designed to address specific considerations raised by certain leveraged or inverse funds and exchange-listed commodity or currency pools ("leveraged investment vehicles"). In connection with these proposed new rules, the Commission proposed to amend rule 6c-11 under the Act to allow certain leveraged or inverse ETFs to operate without obtaining an exemptive order.

Finally, the Commission proposed new reporting requirements and amendments to certain disclosure forms.