SEC NEWS DIGEST Issue 2005-140 July 25, 2005 COMMISSION ANNOUNCEMENTS HEARING ON NOMINATIONS The Senate Committee on Banking, Housing, and Urban Affairs has scheduled a hearing for Tuesday, July 26, to consider the nominations of Congressman Christopher Cox, Commissioner Roel C. Campos, and Ms. Annette L. Nazareth to serve as Commissioners of the Securities and Exchange Commission. The hearing will be held in Room 538 of the Dirksen Senate Office Building and will begin at 10:00A.M. JAMES MCCONNELL TO TESTIFY Executive Director James M. McConnell will testify before the Senate Subcommitteee on Federal Financial Management, Government Information, and International Security on Wednesday, July 27, concerning financial management at the SEC. The hearing where this testimony will be presented will begin at 2:30 P.M. in Room 562 of the Dirksen Senate Office Building. ENFORCEMENT PROCEEDINGS IN THE MATTER OF PRUDENTIAL EQUITY GROUP, LLC, f/k/a PRUDENTIAL SECURITIES INC. On July 25, the Commission instituted and settled public administrative and cease-and-desist proceedings against Prudential Equity Group LLC (Prudential Equity) for violations of Section 17(b) of the Securities Act of 1933 and Section 17(b) of the Securities Exchange Act of 1934. The proceedings found that in October 2001, Prudential Equity published a research report on a public company that failed to disclose the firm had received a payment in consideration for issuing the research, in violation of Section 17(b) of the Securities Act. The proceedings also found that Prudential Equity violated Section 17(b) of the Exchange Act by failing to promptly produce to the Commission’s staff documents relating to that payment. The Commission ordered Prudential Equity to cease and desist from committing or causing any violations or future violations of Section 17(b) of the Exchange Act, censured the firm for both the Securities Act and Exchange Act violations, and ordered the firm to pay a $125,000 civil money penalty for the violation of Section 17(b) of the Securities Act. Prudential Equity consented to the issuance of the Order without admitting or denying the Commission’s findings. (Rel. 34-52116; File No. 3-11989) FRAUD CHARGES FILED AGAINST GLENN GLASSHAGEL The Commission announced that on July 15 it filed civil fraud charges against Glenn E. Glasshagel, the former Chief Financial Officer of Roadhouse Grill, Inc., a Pompano Beach, Fla., restaurant chain. The SEC’s complaint, which alleges that Glasshagel orchestrated a scheme to manipulate Roadhouse Grill’s earnings between 1999 and 2000, seeks injunctive relief, disgorgement plus prejudgment interest, civil money penalties, and an officer and director bar. According to the SEC's complaint, during Roadhouse Grill’s 1999 and 2000 fiscal years, Glasshagel implemented various accounting schemes designed to artificially inflate Roadhouse Grill’s reported pre-tax earnings in order to meet the expectations of the one Wall Street analyst that covered the company. The complaint alleges, for example, that Glasshagel caused Roadhouse Grill to inflate its earnings by understating various accrual accounts. Accrual accounts contain provisions for anticipated expenses that companies expect to incur within a fiscal year. According to the Commission’s complaint, at the end of certain periods during the 1999 and 2000 fiscal years, Glasshagel made improper reductions in these accrual accounts in order to improve Roadhouse Grill’s earnings. The complaint also alleges that Glasshagel caused Roadhouse Grill to overstate its fiscal 2000 net income by recording a non-existent rebate receivable from one of the company’s suppliers. According to the Commission’s complaint, this rebate never existed and Roadhouse Grill never received it. Based on these various improper entries, the Commission’s complaint alleges that Glasshagel caused Roadhouse Grill to overstate its fiscal 1999 net income by 5% and its fiscal 2000 net income by 35%. In both of those fiscal years, Roadhouse Grill met the expectations set by the Wall Street analyst that covered the company. After Glasshagel resigned from Roadhouse Grill in July 2000, the company’s new management discovered his misconduct. On Aug. 1, 2001, Roadhouse Grill issued a press release announcing that it had overstated its net income during its fiscal years ended 1999 and 2000 and the intervening quarterly periods, and that it would be restating its prior financial results. The SEC’s complaint alleges that, as a result of Glasshagel’s conduct, he violated Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5, 13b2-1 and 13b2-2 thereunder, and that he aided and abetted Roadhouse Grill’s violations of Sections 13(a), 13(b)(2)(A) and 13 (b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, and 13a- 13, thereunder. [SEC v. Glenn E. Glasshagel, Civil Action No. 05-61159- CIV-COOKE, S. D. Fla., filed July 15, 2005] (LR-19309) INVESTMENT COMPANY ACT RELEASES ORDERS OF DEREGISTRATION UNDER THE INVESTMENT COMPANY ACT Orders have been issued under Section 8(f) of the Investment Company Act of 1940 declaring that each of the following has ceased to be an investment company: Bessemer Funds Trust [File No. 811-103551; Rel. No. IC-269951 July 21, 2005] Kit Cole Investment Trust [File No. 811-9887; Rel. No. IC-269961 July 21, 2005] Strong Large Cap Growth Fund, Inc. [File No. 811-3254; Rel. No. IC- 269971 July 21, 2005] Strong Balanced Fund, Inc. [File No. 811-3256; Rel. No. IC-26998, July 21, 2005] Strong Opportunity Fund, Inc. [File No. 811-3793; Rel. No. IC-26999, July 21, 2005] Strong Money Market Fund, Inc. [File No. 811-4374; Rel. No. IC-27000, July 21, 2005] Strong Equity Funds 11, Inc. [File No. 811-4384; Rel. No. IC-27001, July 21, 2005] Strong Corporate Bond Fund, Inc. [File No. 811-4390; Rel. No. IC-27002, July 21, 2005] Strong Municipal Bond Fund, Inc. [File No. 811-4769; Rel. No. IC-27003, July 21, 2005] Strong Municipal Funds, Inc. [File No. 811-4770; Rel. No. IC-27004, July 21, 2005] Strong Government Securities Fund, Inc. [File No. 811-47981; Rel. No. IC- 27005, July 1, 2005] Strong Short-Term Bond Fund, Inc. [File No. 811-5108; Rel. No. IC-27006, July 21, 2005] Strong Discovery Fund, Inc. [File No. 811-53411; Rel. No. IC-27007, July 21, 2005] Strong Advantage Fund, Inc. [File No. 811-5667; [Rel. No. IC-27008, July 21, 2005] Strong Common Stock Fund, Inc. [File No. 811-5687; Rel. No. IC-27009, July 21, 2005] Strong Income Funds, Inc. [File No. 811-6195; Rel. No. IC-27010, July 21, 2005] Strong Short-Term Municipal Bond Fund, Inc. [File No. 811-6409; Rel. No. IC-27011, July 21, 2005] Strong International Equity Funds, Inc. [File No. 811-65241; Rel. No. IC- 27012, July 21, 2005] Strong Heritage Reserve Series, Inc. [File No. 811-7285; Rel. No. IC- 27013, July 21, 2005] Strong Income Funds II, Inc. [File No. 811-7335; Rel. No. IC-27014, July 21, 2005] Strong Conservative Equity Funds, Inc. [File No. 811-7656; Rel. No. IC- 27015, July 21, 2005] Strong Asia Pacific Fund, Inc. [File No. 811-8098; Rel. No. IC-27016, July 21, 2005] Strong Equity Funds, Inc. [File No. 811-8100; Rel. No. IC-27017, July 21, 2005] Strong Short-Term Global Bond Fund, Inc. [File No. 811-8320; Rel. No. IC- 27018, July, 21, 2005] Strong Life Stage Series, Inc. [File No. 811-9091; Rel. No. IC-27019, July 21, 2005] Strong Income Trust [File No. 811-21209; [Rel. No. IC-27020, July 21, 2005] Transamerica Index Funds, Inc. [File No. 811-21094; Rel. No. IC-27021 July 21, 2005] SELF-REGULATORY ORGANIZATIONS IMMEDIATE EFFECTIVENESS OF PROPOSED RULE CHANGES A proposed rule change filed with the Commission by the Chicago Board Options Exchange to amend Rule 8.3A relating to Class Quoting Limits (CBOE-2005-48) has become immediately effective under Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication of the proposal is expected in the Federal Register during the week of July 25. (Rel. 34-52100) The Depository Trust Company filed a proposed rule change (SRDTC-2005- 06) under Section 19(b)(3)(A) of the Securities Exchange Act. The proposed rule change, which was effective upon filing, adds a new Agency Lending Disclosure feature to its SMART/Track service. The new feature will enable agent lenders to disclose to securities borrowers information regarding the principal lenders of the securities loans. Publication of the proposal is expected in the Federal Register during the week of July 25. (Rel. 34-52104) The Options Clearing Corporation filed a proposed rule change (SR-OCC- 2005-11) under Section 19(b)(l) of the Exchange Act, which proposed rule change became effective upon filing, to conform OCC's year-end financial reporting deadline applicable to clearing members primarily regulated as Futures Commission Merchants with the Commodity Futures Trading Commission's Regulations. Publication of the proposal is expected in the Federal Register during the week of July 25. (Rel. 34-52110) A proposed rule change filed by the Chicago Board Options Exchange relating to extension of its prospective fee reduction program has become effective under Section 19(b)(3)(A)(ii) of the Securities Exchange Act of 1934 (SR-CBOE-2005-52). Publication of the proposal is expected in the Federal Register during the week of July 25. (Rel. 34- 52111) ACCELERATED APPROVAL OF PROPOSED RULE CHANGES The Commission granted approval to a proposed rule change (SR-CHX-2004- 11) and Amendment No. 1 thereto and granted accelerated approval of Amendment No. 2 thereto submitted under Rule 19b-4 of the Securities Exchange Act of 1934 by the Chicago Stock Exchange to implement a fully-automated electronic book for the display and execution of orders in securities that are not assigned to a specialist. Publication is expected in the Federal Register during the week of July 25. (Rel. 34-52094) The Commission noticed and granted accelerated approval to a proposed rule change submitted by the Philadelphia Stock Exchange (SR-Phlx-2005- 46) under Rule 19b-4 of the Securities Exchange Act of 1934 relating to an extension of the Linkage Fee Pilot Program. Publication of the notice in the Federal Register is expected during the week of July 25. (Rel. 34-52095) PROPOSED RULE CHANGES The Commission issued a notice of filing of a proposed rule change and Amendment No. 1 thereto (SR-CBOE-2004-86), submitted by the Chicago Board Options Exchange under Rule 19b-4 of the Securities Exchange Act of 1934, relating to the Exchange's modified Rapid Opening System. Publication of the notice is expected in the Federal Register during the week of July 25. (Rel. 34-52101) The Pacific Exchange filed a proposed rule change and Amendments 1 and 2 thereto (SR-PCX-2005-58) pursuant to Section 19(b)(l) of the Securities Exchange Act of 1934 relating to its Market Order Auction. Publication is expected in the Federal Register during the week of July 25. (Rel. 34-52103) APPROVAL OF PROPOSED RULE CHANGES The Commission approved a proposed rule change (SR-PCX-2005-67) submitted under Section 19(b)(l) of the Securities Exchange Act of 1934 by the Pacific Exchange relating to exchange fees and charges. Publication of the proposal is expected in the Federal Register during the week of July 25. (Rel. 34-52083) The Commission approved a proposed rule change filed by NASD (SR-NASD- 2005-060) to create the ModelView historical data product designed to provide the aggregate amount of both reserve size liquidity in the Nasdaq Market Center at each price level. Publication of the order is expected to be made in the Federal Register during the week of July 25. (Rel. 34-52112)