Click the image for the full docs brought by the SEC against Harbinger Capital and Phil Falcone — containing the tax loan allegation, the client redemption restriction allegation, and the MAAX bond short squeeze allegation…
On the day the UK said goodbye to its own little unregulated shop for penny dreadfuls, the SEC has unleashed an altogether more dramatic crackdown on the US equivalent – so-called Pink Sheet stocks traded over the counter.
Washington, D.C., May 14, 2012 — The Securities and Exchange Commission today suspended trading in the securities of 379 dormant companies before they could be hijacked by fraudsters and used to harm investors through reverse mergers or pump-and-dump schemes. The trading suspension marks the most companies ever suspended in a single day by the agency as it ramps up its crackdown against fraud involving microcap shell companies that are dormant and delinquent in their public disclosures. Read more
From the SEC on Thursday:
The Securities and Exchange Commission (“Commission”) deems it appropriate and in the public interest that public administrative and cease-and-desist proceedings be, and hereby are, instituted pursuant to Sections 15(b) and 21C of the Securities Exchange Act of 1934 (“Exchange Act”) against Goldman, Sachs & Co. (“Respondent” or “Goldman”). Read more
As part of the Dodd-Frank Act, various types of participants in derivatives markets need to be defined. According to the jersey one ultimately gets as a trader of interest rate swaps, credit default swaps and so on, different regulations may apply.
(Where “security-based”, regulator equals SEC, otherwise CFTC.) Read more
Okay, seems some of you didn’t especially like Paul’s take on the FSA’s “charades” inside information case on Tuesday. Well the SEC has laid charges over an alleged insider trading case that we can all get behind (if it turns out to be correct, of course). Read more
The SEC has begun a broad examination of the private equity industry, says NYT DealBook, citing two people with direct knowledge of the matter. The regulator’s enforcement unit sent a letter late last year to several private equity funds as part of what it called an “informal inquiry” into the industry, according to the sources, but the blog said it was not clear which firms received the letter. While the SEC. emphasised that the request should not be construed as an indication that it suspected any wrongdoing, its goal in gathering information was to investigate possible violations of securities laws, the sources said. The way private equity firms value their investments and report performance was said to be one aspect of the investigation.
Maybe we are making too much of this, but when the SEC is on its 30th or so figurative lynching related to the Galleon rat case, does it really need to juice up its press releases in the hope of a tabloid pickup?
From the SEC IMMEDIATE RELEASE Read more
Take a moment to imagine what it must be like to be an American regulator. There are plenty to imagine being: the OCC, the Fed, the CFTC, SEC, FDIC, and that thrift one, until it subsumed into the OCC. Got one?
While I will miss doing this important work, I am gratified knowing that nearly every aspect of the SEC has been significantly improved in the four years since I was named Inspector General. Read more
Hedge fund lobbyists are pushing the SEC to repeal the Depression-era regulation which officially prohibits funds from all general advertising and solicitation, the FT reports. Funds have long complained that rule 502(c) of Regulation D makes it too difficult to find out whether managers are providing enough information for their clients, or even to discover new funds. Even the largest funds have little more than basic contact information on their websites as a consequence of the rule. Rule 502 emerged after the 1929 Wall Street Crash in order to prevent private funds taking advantage of “unsuitable” investors. However, rules in the US Investment Company Act have since restricted funds to taking money only from “qualified purchasers”, leading lobbyists to argue that the older rule has become redundant.
The FT says fund lobbyists have petitioned the US Securities and Exchange Commission to repeal the rule that lies behind one of the industry’s most notorious traits: its secrecy. The Managed Funds Association, which counts George Soros, John Paulson and Louis Bacon as members of its founding council, has implored the SEC to eliminate rule 502(c) of Regulation D – an arcane piece of Depression-era legislation that defines how the modern hedge fund industry operates. The rule officially prohibits all general advertising and solicitation by hedge funds. But it is so broadly defined that it means most do not communicate with unqualified outsiders, especially the press, at all.
The Securities and Exchange Commission has warned that US financial institutions’ disclosures have been “inconsistent in both substance and presentation”, specifically regarding sovereign debt exposure and financial and non-financial debt exposure, reports the WSJ. In guidance released on Friday, the SEC asked banks to consider providing a breakdown of exposure to each type of debt, by country. Regulators also are seeking information on how gross exposures are hedged through instruments such as credit-default swaps, as well as a discussion of “the circumstances under which losses may not be covered by purchased credit protection”, says the newspaper. The guidance is not binding.
Fortress Investment Group’s CEO Daniel Mudd has announced that he is taking a leave of absence from the hedge fund, the WSJ reports. This comes after being named as a defendant in a civil securities-fraud lawsuit brought by the SEC last Friday, with respect to his prior role as the CEO of Fannie Mae. The suit alleges that risks that the firm was taking on, with respect to mortgage holdings, were not accurately disclosed to investors. While representatives of Fortress have stated that the suit doesn’t affect their business, there was concern among executives that it could alienate investors.
The US Securities and Exchange Commission has charged a subsidiary of GlaxoSmithKline and its former chief executive with defrauding employees and shareholders out of more than $100m by buying back stock from them at undervalued prices when the unit was a private company, the FT reports. The SEC on Monday alleged that Charles Stiefel and Stiefel Laboratories, which was bought by GSK in 2009, failed to tell shareholders and employees the true value of Stiefel’s stock when the company used low valuations for buy-backs from 2006 to 2009. An attorney representing Mr Stiefel could not immediately be reached for comment. GSK said it intends to “vigorously” defend itself against the charges. NYT DealBook says the civil action against Mr Stiefel, filed in federal court in Miami, is unusual because it involves privately held stock, rather than publicly traded shares.
The SEC has asked companies including Sony, Caterpillar and American Express to provide more disclosure about their business activities in Syria, Iran, Sudan and Cuba, amid growing Congressional scrutiny, the FT says. The US Congress is focusing on a loophole that allows some US subsidiaries to operate in countries where sanctions are in place. Caterpillar told the SEC in May that non-US subsidiaries “have sold and continue to sell” products to Syria, estimating that its sales there totalled $600,000 in the first quarter. All of the companies said in their filings that they did not think a reasonable investor would deem the amounts sold to these countries a material risk, although the SEC is considering requiring even non-material ties to Syria, Iran or Sudan to be disclosed.
At least a dozen US-listed companies have been told by securities regulators to disclose business activity in and with Syria, Iran and others deemed “state sponsors’’ of terror by the state department, reports the FT. The US Securities and Exchange Commission has written to several companies in the past few months asking why they had not disclosed business dealings in Syria, Iran, Sudan and Cuba. The inquiries are part of SEC reviews of companies’ investment risks to security holders. Sony, Caterpillar, American Express, Aecom Technology, Iridex, and Veolia Environnement are among the companies that received letters from the SEC’s corporate finance division. Their responses show how sales have shrivelled with tighter international sanctions and how some companies, such as Sony, have found middle-men in Dubai and other countries to keep limited supply lines open.
Fifty money managers ranging from Warren Buffett to Carl Icahn have used exemptions from the SEC to avoid disclosing large investments in companies this year, affecting 154 quarterly filings, the WSJ reports. While the SEC usually requires that managers owning more than $100m disclose acquired stakes in quarterly filings, this can be waived if the disclosure would cause “substantial harm” to their competitiveness. Other investors argue that the SEC is not doing enough to explain why it gives the exemptions. Warren Buffett’s recent disclosure of a $10.7bn stake in IBM has reignited debate over the practice.
Securities and Exchange Commission Civil Action No 11 CV 8605.
Presented without comment, obv. Read more
Jed Rakoff is quite the hero. A New York District judge, he has done what the rest of us would love to do, and busted a cosy deal between bankers and their regulators. In early 2007, just when everything was starting to slide, the caring, sharing boys at Citigroup assembled a $1bn fund of, ahem, less-than-prime mortgage-backed securities. As Judge Rakoff explained.
That allowed [the bank] to dump some dubious assets on misinformed investors. This was accomplished by Citigroup’s misrepresenting that the fund’s assets were attractive investments rigorously selected by an independent investment adviser, whereas in fact Citigroup had arranged to include in the portfolio a substantial percentage of negative projected assets and had then taken a short position in those very assets it had helped select. Read more
A US judge rejected the SEC’s $285m settlement with Citigroup to resolve allegations that the bank misled buyers of a mortgage-related security, and signalled he would no longer approve such deals without admissions of wrongdoing, reports the FT. Judge Jed Rakoff wrote that he could not approve the settlement “because the court has not been provided with any proven or admitted facts upon which to exercise even a modest degree of independent judgment”. Citigroup was seeking to settle allegations it misled investors in a $1bn security by failing to disclose that the bank helped select some assets included in the security and bet against them. Citigroup did not admit or deny wrongdoing – a standard practice for four decades in SEC settlements. The SEC criticised the decision in a strongly worded statement but did not say whether it would appeal. Judge Rakoff also contrasted the SEC’s treatment of Citigroup and Goldman Sachs, which was forced to state in a settlement over a CDO that its disclosures “contained incomplete information”, says NYT DealBook.
The SEC’s whistleblower programme that rewards financial insiders for providing tip offs on alleged securities fraud looks set to make its first payouts, something the agency had hoped to do by at least next year. The programme, launched under the Dodd-Frank Act, offers payments of at least $100,000 when the information provided to the SEC results in big enforcement penalties, reports the WSJ. To date 334 tips have been received under the programme from the day it became effective on August 12th to the end of September. This has included three whistleblowers, who came forward alleging that Bank of New York Mellon and State Street overcharged clients for currency trades, and who have now also filed claims for bounties. The banks deny the allegations and the SEC is investigating.
How do you buy $10b.7n worth of stock in a big blue chip like IBM without alerting the market?
The WSJ’s Deal Journal has one answer. You cut a deal with the SEC: Read more
UBS agreed with the SEC on Thursday to pay $8m to settle allegations that it pervasively violated short selling record-keeping rules aimed at preventing abusive trading, the FT reports.The settlement followed the bank’s agreement to pay $12m last month to settle related short selling violations with the Finra, a self-regulatory organisation. As part of its cease and desist order with the SEC, UBS agreed to retain an independent consultant and did not admit or deny wrongdoing. According to the SEC, since at least 2007, UBS’s lending desk kept inaccurate “locate” logs. The practice was “pervasive, extending to every security handled by the lending desk”, the SEC said. The case alleging violations of the short selling rule known as “Reg Sho” is likely to be the first of several, says the newspaper.
A federal judge overseeing a $285m settlement between Citigroup and the SEC expressed major concerns on Wednesday about the agency’s enforcement practices, reports NYT DealBook. The settlement would effectively close the book on regulators’ accusations that the bank deceived investors in the sale of mortgage securities. The judge, Jed Rakoff of the Federal District Court in Manhattan, reserved judgment on whether he would sign off on it, explaining that he would issue a written opinion at a later date. Yet the judge made it clear that he had serious concerns about how the commission reached such settlements — and whether they were tough enough.
The SEC expects to file charges against more Wall Street firms related to the sale of mortgage-linked securities, with hopes of wrapping up probes from the financial crisis in the near term, the FT says, citing a senior enforcement official. The potential charges would follow SEC settlements with three Wall Street banks that allegedly misled investors who bought collateralised debt obligations. The SEC had claimed that the banks failed to tell investors that some assets in the CDOs had been selected by parties who had bet against them. Last month, Citigroup agreed to pay $285m to settle. Goldman and JPMorgan Chase previously paid $550m and $153.6m, respectively, to settle without admitting or denying wrongdoing.
MF Global used client money to trade from its own accounts in violation of government rules, reports the AP citing a “federal official”.
The discovery of a reported $700m hole in MF Global client accounts — which according to the Commodity Exchange Act and the Securities Exchange Act should be segregated from the firm’s proprietary trades — jettisoned the rumoured takeover of Jon Corzine’s brokerage by rival Interactive Brokers, according to various media reports. Read more
Finra settled its case with the SEC on Thursday, neither admitting or denying the charges which involved a director at Finra’s regional office in Kansas City altering minutes of meetings before turning them over to the SEC’s inspection team, reports the WSJ. The self-regulatory organisation currently oversees 4,600 brokerage firms and has been seeking approval from law-makers to expand its responsibilities to cover more than 10,000 investment-advisory firms, something that would potentially take some pressure off the SEC’s own examinations staff. While the incident from the now settled case was from 2008, it was the third time in eight years that Finra, or its predecessor organisation NASD, had provided documents to the SEC that had been altered or were misleading.
The newly released SEC and FBI complaints against Rajat Gupta detail the alleged evidence of insider trading by the ex-McKinsey boss.
As the FT suggested Wednesday morning, Buffett’s investment in Goldman Sachs forms a key part of both cases, along with two other alleged instances relating to the bank, and a further two relating to Procter & Gamble, where Gupta was also a board member. Read more
The WSJ has got its hands on a list of the 18 “well-timed” SAC Capital trades referred by Finra or its predecessor NASD to the SEC between 2002 and 2011: