Broken Windows Continues: SEC Brings Group of Actions Centered on Section 13(d)(2) Violations

The “broken windows” approach to enforcement is alive, well and continuing. This time the Commission bundled together three groups of actions and eight proceedings, all centered on a failure to update disclosures tied to going private transactions:

In the Matter of Berjaya Lottery Management (H.K.), Adm. Proc. File No. 3-16436 (March 13, 2015) names as a Respondent the Hong Kong based firm which manufactures and distributes computerized lottery and voting systems. The action centers on a going-private transaction regarding International Lottery & Totalizator Systems, Inc., a California based public company. Between July 7 and 10, 2013 the firm took significant steps toward the privatization of International Lottery. Since the firm had acquired a majority holding in International Lottery it had an obligation to promptly amend its Item 4 disclosures on Schedule 13D concerning the transaction. Nevertheless, the firm waited eight months to make the required disclosures regarding the steps taken, contrary to Exchange Act Section 13(d)(2). The firm settled, consenting to the entry of a cease and desist order based on the Section cited in the Order while agreeing to pay a penalty of $75,000.

In the Matter of The Ciabattoni Living Trust Dated August 17, 2000, Adm. Proc. File No. 3-16437 (March 13, 2015) is a proceeding which names the trust as a Respondent. It centers on a going private transaction regarding First Physicians Capital Group, Inc. Related proceedings were filed against the beneficial owners of the shares, Aathony J. Ciabattoni and Jane Ciabattoni. In the Matter of Anthony J. Ciabattoni, Adm. Proc. File No. 3-16438 (March 13, 2015); In the Matter of Jane G. Ciabattoni, Adm. Proc. File No. 3-16439 (March 13, 2015). The Orders state that the Respondents in each proceeding waited over five months to amend their Schedule 13D disclosures after taking significant steps toward a going private transaction regarding First Physicians, contrary to Exchange Act Section 13(d)(2). In addition, Respondents violated Section 16(a) by failing to report material transactions in shares of that group for months. The proceedings were resolved with each Respondent consenting to the entry of a cease and desist order based on the Sections cited in the Order. In addition, the three defendants were ordered to pay a penalty, on a joint and several basis, of $75,000. The settlements reflect the cooperation of the Respondents. See also In the Matter of SMP Investments I, LLC, Adm. Proc. File No. 3-16440 (March 13, 2015)(proceeding also tied to the First Physicians transaction alleging the same type of violations involved in The Ciabattoni Living Trust; resolved with a cease and desist order based on the same Sections and the payment of a penalty of $63,750 on a joint and several basis with Brian Potiker); In the Matter of Brian Potiker, Adm. Proc. File No. 3-16441 (March 13, 2015)(same): In the Matter of William A. Houlihan, Adm. Proc. File No. 3-16442 (March 13 2015)(A proceeding also based on the First Physicians transaction alleging essentially the same violations; settled with a cease and desist order based on the same Sections and the payment of a penalty of $15,000).

In the Matter of Shuipan Lin, Adm. Proc. File No. 3-16435 (March 13 2015) names as a Respondent the CEO of China based Exceeds Company Ltd. The action centers on a going private transaction regarding that firm. After taking several steps to effectuate that transaction Respondent filed to amend his Schedule 13D as required. The proceeding was resolved with Respondent’s consent to a cease and desist order based on Exchange Act Section 13(d)(2) and the payment of a civil penalty of $30,000.