Posts

Showing posts with the label SEC

Federal Judges as Rubber Stamps

Appeals Court Ruling in Citi Case Is a Gift to Big Banks

Anyone still waiting for justice with respect to the role that large banks played in the financial crisis had to be disappointed in a New York appeals court's ruling in a case involving a settlement agreement between Citigroup Global Markets and the Securities and Exchange Commission. Read more at:

http://www.americanbanker.com/bankthink/appeals-court-ruling-in-citi-case-is-a-gift-to-big-banks-1067939-1.html

Also see: http://www.prlog.org/11948760-william-michael-cunningham-files-revised-brief-in-sec-vs-citigroup-2nd-cir-ct-of-ap.html

Exit, Stage Left

Image
We note, with more than a little regret, Mary Schapiro's exit from the Securities and Exchange Commission. How her departure will impact the Dodd/Frank Section 342 initiative and Crowdfunding is unclear.

She was in a tough and thankless job. In her favor, she did save the Agency. The question is, save it for what? Will it take the more aggressive stance required to repair the financial system? It seemed to be moving in that direction.

My concerns with the Agency are well known, but Ms. Schapiro was cordial and professional every time I met her.

I thank her for her service and wish her well.

Crowdfunding webinar - 9/13/12

This webinar will provide a social investing summary of the law, along with a summary of how investors and businesses can use the law to enter the Crowdfunding market. We will also review current developments. All paying attendees will get a copy of my book: The JOBS Act: Crowdfunding for Small Businesses and Startups [Paperback - Published 9/26/12]  The law targets emerging growth companies and defines them as an issuer with “total annual gross revenues of less than $1,000,000,000 (one billion dollars)..during its most recently completed fiscal
year.”  For potential investors, providing a platform for the sale of emerging company securities does not require registration as a Broker/Dealer, given certain exemption qualifications. To become a funding platform, vendors must fulfill 12 requirements. Equity issuers are subject to certain restrictions/limits.  There are four trading restrictions and three exemptions. Issuers (Emerging Growth Companies) are liable for any untrue statements of …

SEC Open Meeting 8/29 on the JOBS Act

Image
The above is from the SEC's meeting on Rule 506 of Regulation D. This is an important provision that will allow small firms to raise up to $50 million under the JOBS Act. The result of the meeting is that a draft rule will be posted to the SEC website concerning the mechanics of this provision later today. 

JOBS Act Hearing and Meeting

Image
As C-SPAN noted, "The JOBS Act (Jumpstart Our Business Startups Act), designed to help small companies raise investment capital, was signed into law by President Obama on April 5, 2012. 

On June 26th, the TARP Subcommittee of  the House Oversight held a hearing on the Security and Exchange Commission's (SEC) efforts to implement the Act. The SEC had 270 days from the signing of the Act to set forth rules. Rep. Patrick McHenry (R-NC) chaired the hearing. The JOBS Act relaxes some of the regulations put in place by the Sarbanes-Oxley Act and establishes the creation of Internet funding portals to facilitate 'crowd funding,' the collective pooling of money to support business projects. Critics worry that the JOBS Act's relaxed regulations will encourage fraud." 

We attended the hearing and found that the SEC will be late in responding to the deadlines established by the law. No mention was made of the recent $2 billion dollar loss at JP Morgan or the LIBOR scandal…

SEC v Citi - First response to new briefs

Selected highlights from the Appeals Court Brief filed yesterday by the SEC:

"As one example, the same district judge who rejected the consent judgment here approved a consent judgment in which Worldcom agreed to injunctive relief—and later, a $750 million penalty, one of the largest ever obtained by the Commission—without admitting or denying the fraud allegations in the complaint."

Irrelevant, since they refer to a different time and industry. More importantly, a $750 million dollar fine in 2002 translates into a $962 million dollar fine in 2012. Or a $285 million dollar fine is only $223 million in 2002 dollars.


The SEC notes that "BP resolved charges that it violated the Clean Air Act in connection with the Texas City refinery explosion, which killed 15 people and injured 170, by entering into a consent judgment that ordered it to undertake an array of remedial measures and pay one of the largest civil penalties ever assessed for Clean Air Act violations at an individ…

"Friend of the Court" brief in SEC vs. Citigroup (2nd Cir Ct of Ap)

William Michael Cunningham submitted a "Friend of the Court" brief in a case currently pending before the United States Court of Appeals for the Second Circuit.

The case concerns the rejection, by a Federal Judge, of a settlement agreed to by the United States Securities & Exchange Commission (SEC) and Citigroup Global Markets Inc. (Citigroup), the latter accused of securities fraud.

As a friend to the Court, Mr. Cunningham seeks to provide an independent, objective and unbiased view in support of broad public interests. His education and experience have uniquely positioned him to provide objective, independent research and opinions concerning the issues central to the case.

The "Friend of the Court" brief concludes by noting that markets have become less stable. Faulty regulatory practices and collusion (too big to fail, etc.) have moved regulators and lawmakers..in the direction of supporting suppliers to the financial service marketplace. A decision by the (App…

Pamela Gibbs Selected as SEC OMWI Director

"The Securities and Exchange Commission..announced that Pamela A. Gibbs has been named as the inaugural Director of the Office of Minority and Women Inclusion, which oversees diversity in the agency's employment, management, and business activities.

Ms. Gibbs comes to the SEC from the Commodity Futures Trading Commission, where she has served since October 2009 as the Director of its Office of Diversity and Inclusion. In that role, Ms. Gibbs was the principal advisor to the CFTC Chairman on equal employment and diversity matters, and oversaw outreach and recruitment of minority and women's groups. She also worked with the agency's Office of General Counsel and Office of Human Resources to ensure fairness and consistency in the agency's personnel policies and practices.

Prior to the CFTC, Ms. Gibbs.. started in 1991 as a trial attorney in the Civil Rights Division (of the Department of Labor). She later was Acting Deputy Director for Program Operation in the Office o…

Major SEC shareholder resolution policy change

According to the Responsible Investor and SEC websites, in a major policy reversal, "the Securities and Exchange Commission (SEC) (will) allow shareholder resolutions (concerning) companies’ environmental and social risks.. Similar resolutions had previously been blocked under policies dating back to the Bush administration. The move was unveiled in new guidance by the SEC’s Division of Corporation Finance under new director Meredith Cross. As a result, companies will no longer be able to automatically exclude resolutions seeking information on the risks of environmental, human rights and other social issues." Shareholder resolutions are now sure to include executive compensation, community development, diversity, gender, SRI, ESG and CSR issues.

See: http://www.sec.gov/interps/legal/cfslb14e.htm

Hearing on Oversight of the SEC’s Failure to Identify the Bernard L. Madoff Ponzi Scheme and How to Improve SEC Performance(Jui Kai Li)

On Sept 10th, the US Senate Committee on Banking, Housing, and Urban Affairs held a hearing on Oversight of the SEC’s Failure to Identify the Bernard L. Madoff Ponzi Scheme and How to Improve SEC Performance.

Testifying were H. David Kotz, Esq. - Inspector General SEC, Harry Markopolos- Chartered Financial Analyst and Certified Fraud Examiner, Robert Khuzami, Esq - Division of Enforcement SEC, John Walsh, Esq - Office of Compliance Inspections and Examinations SEC

The testimony is summarized below and copies of the written statements are available at;
http://banking.senate.gov/public/index.cfm?FuseAction=Hearings.Hearing&Hearing_ID=7b38b6a3-f381-4673-b12c-f9e4037b0a3f

Madoff's alleged Ponzi scheme is the biggest fraud held by a person in the US history. By definition, a Ponzi scheme is a fraudulent investment operation that pays returns to separate investors from their own money or money paid by subsequent investors, rather than from any actual profit earned. Although investors…

SEC issues investor warning

According to the Chicago Sun Times, "Exchange-traded funds that leverage their holdings could lead to outsized losses, the Securities and Exchange Commission said. It said brokers and financial advisers should warn people away from them unless they plan to hold them for just a day. The problem with leveraged ETFs comes down to the magic and mystery of compounded returns. If you leave your money in a leveraged ETF over time, your return can differ drastically from the fund's stated goal, especially in volatile markets. "

Hearing on the Administration’s Proposal to Regulate the Over-the-Counter Derivatives Market (William Cunningham, Jui-Kai Li, Hsiu-Jui Chang)

At 10:00 a.m. on Friday, July 10, 2009, in 1100 Longworth House Office Building, the Full Committee of the House Agriculture Committee and the House Financial Services Committee conducted a hearing titled "A Review of the Administration’s Proposal to Regulate the Over-the-Counter Derivatives Market." Timothy F. Geithner, Secretary, U.S. Department of the Treasury, was the only witness.

The hearing began with a consideration of the risk to taxpayers from the over the counter derivatives market. According to Wikipedia,

"Over-the-counter (OTC) derivatives are contracts that are traded (and privately negotiated) directly between two parties, without going through an exchange or other intermediary. The OTC derivative market is the largest market for derivatives, and is largely unregulated with respect to disclosure of information between the parties, since the OTC market is made up of banks and other highly sophisticated parties, such as hedge funds. According to the Bank fo…

SEC Disclosure Initiatives (E.M. Chang)

Modernizing the Securities and Exchange Commission’s Disclosure System

Yesterday, the SEC hosted a roundtable meeting to discuss the 21st Century Disclosure Initiative. The Initiative seeks to examine the basic purposes of disclosure, from the perspectives of investors and markets. The SEC hopes to create a comprehensive plan for overhauling the current disclosure system, EDGAR.

In the first panel, panelists talked about the kinds of information and data format that the market and investors really need, given this dynamic market environment. Most panelists argued that investors need summarized information rather than whole financial statements.

A summary of panelist comments would be:

"Most individual investors access company information using third party services, like Yahoo Finance, Bloomberg, etc… The issue is that people don’t really have time and ability to figure out where is the number they want by looking at the hundreds pages financial statements in the EDGAR system. Howev…

SEC Charges Two Wall Street Brokers in $1 Billion Subprime-Related Auction Rate Securities Fraud

According to the SEC:

"Washington, D.C., Sept. 3, 2008 — The Securities and Exchange Commission today charged two Wall Street brokers with defrauding their customers when making more than $1 billion in unauthorized purchases of subprime-related auction rate securities. The SEC's Division of Enforcement in 2007 formed a subprime working group, which is aggressively investigating possible fraud, market manipulation, and breaches of fiduciary duty that may have contributed to the recent turmoil in the credit markets.

The SEC's complaint, filed in federal court in Manhattan, alleges that Tzolov and Butler, while employed at Credit Suisse Securities (USA) LLC in New York, deceived foreign corporate customers in short-term cash management accounts by sending or directing their sales assistants to send e-mail confirmations in which the terms 'St. Loan' or 'Education' were added to the names of non-student loan securities purchased for the customers. Tzolov and Butl…

Freddie and Fannie: What should be done now

Our recommendations for dealing with the housing GSEs are as follows:

1. Freddie Mac should be closed. Having a second housing GSE was supposed to provide competition and serve as a check on the first housing GSE, Fannie Mae. Clearly, this did not work. No need to continue, so:
2. Merge Freddie and Fannie. Instead of two failing agencies, we now have one. Allows for a concentration of focus, effort. Stabilize the resulting institution.
3. After one year, move Fannie back into HUD. Fannie Mae was separated from HUD in 1968. Time to reverse this. Moving Fannie into HUD extends the full faith and credit guarantee umbrella.

Time to revise the housing GSE experiment.

U.S. Senate confirms 3 new SEC commissioners

According to Reuters,

"WASHINGTON, June 27 (Reuters) - The U.S. Senate on Friday confirmed one Republican and two Democratic nominees to fill open commissioner seats at the Securities and Exchange Commission. Luis Aguilar, a law partner at McKenna Long & Aldridge, and Elisse Walter, a senior executive with the Financial Industry Regulatory Authority, were approved for the vacant Democratic seats on the commission.

Troy Paredes, a professor at Washington University School of Law, was approved for the open Republican spot."

We do not expect much, at this late date, from these new Commissioners. In the SEC's upcoming battle with Treasury and the Federal Reserve Board, having the SEC board at full strength (something the Fed is not) is a small advantage, but will probably be negated.

Under the "Blueprint for Regulatory Reform: A Report from the Treasury Department on Ways to Improve Oversight of the Financial Services Sector" plan announced on Saturday, March 29, …

SEC Adopts Regulations to Implement Sudan Accountability and Divestment Act of 2007

According to the SEC, "The Securities and Exchange Commission has adopted rules requiring a registered investment company (fund) to disclose when it divests, in accordance with the Sudan Accountability and Divestment Act of 2007, from securities of issuers that the fund determines conduct or have direct investments in certain business operations in Sudan. The Commission adopted the rules on April 24, 2008. The Sudan Accountability and Divestment Act required the SEC to prescribe regulations requiring this disclosure by April 29, 2008.

On Dec. 31, 2007, the President signed the Sudan Accountability and Divestment Act into law. Among other things, the Act provides that no person may bring any civil, criminal, or administrative action against any fund, or any employee, officer, director, or investment adviser of the fund, based solely upon the fund divesting from securities issued by persons that the fund determines, using credible information that is available to the public, conduct…

Mutual Fund Comparisons Using Interactive Data Now Available to Investors

We note that "Securities and Exchange Commission Chairman Christopher Cox today announced the launch of a new Internet Web page that enables investors to more easily read, analyze, and compare the information provided by mutual funds related to fund cost, risk, and past performance."

See: http://a.viewerprototype1.com/viewer and http://www.sec.gov/xbrl

SEC Chairman Cox on the "Blueprint for Financial Regulatory Reform"

"Statement of SEC Chairman Christopher Cox Regarding Blueprint for Financial Regulatory Reform
FOR IMMEDIATE RELEASE
2008-53

Washington, D.C., March 29, 2008 — Securities and Exchange Commission Chairman Christopher Cox today issued the following statement regarding the Blueprint for Financial Regulatory Reform being proposed by the Treasury Department:

'Recent events have provided further evidence, if more were needed, that financial services regulation in the United States needs to be better integrated among fewer agencies, with clearer lines of responsibility. Just as systemic risk cannot be neatly parceled along outdated regulatory lines, the overarching objective of investor protection can't be fully achieved if it fails to encompass derivatives, insurance, and new instruments that straddle today's regulatory divides. The proposed consolidation of responsibility for investor protection and the regulation of financial products deserves serious consideration as a way t…