Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Wednesday, April 11, 2007

Nasdaq in Talks to Buy Philadelphia Exchange

Nasdaq is negotiating with the Philadelphia Stock Exchange to acquire it.  The Philadelphia exchange is the third largest options exchange in the country and is 90% owned by Morgan Stanley and Merrill Lynch.  See WSJ, Nasdaq Woos Philadelphia Market.

April 11, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

Daimler Will Meet with Some Bidders for Chrysler

A DaimlerChrysler executive will meet this week in New York with three groups that are bidding for Chrysler -- Blackstone Group, Cerberus, and Magna International.  He is apparently not meeting with Kirk Kerkorian, who last week made a surprise bid of $4.5 billion.  His bid is either too late or excessively conditional.  See WSJ, Daimler to See Bidders -- Minus Kerkorian.

April 11, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

Tuesday, April 10, 2007

SIFMA Wants SEC to Request Re-Hearing of Fee-Based Accounts Decision

The Securities Industry and Financial Markets Association (SIFMA) today announced that it is urging the Securities and Exchange Commission to ask the D.C. Court of Appeals for a rehearing on the issue of fee-based brokerage accounts.  Late last month, the court ruled in favor of the Financial Planning Association (FPA) in its case against the Securities and Exchange Commission, finding the SEC exceeded its statutory authority under Section 202(a)(11)(F) of the Investment Advisers Act of 1940 when it  adopted Rule 202(a) (11)-1, which exempted broker-dealers offering fee-based brokerage accounts from registering as advisers.

“This ruling has the potential to significantly impair an important element of consumer choice for American investors and we strongly urge the SEC to ask for a rehearing.  With this decision, one million investors, with nearly $300 billion in assets, could see a significant reduction in their range of choices and options for receiving and paying for financial services.  Investors deserve no less than robust choice and vigorous competition,” said Marc Lackritz, President and CEO of SIFMA. 

April 10, 2007 in Professional Announcements | Permalink | Comments (0) | TrackBack (0)

SEC Rule 102(e) Proceeding Against Attorney

On April 9, the SEC issued an Order Instituting  Administrative Proceedings Pursuant to Rule  102(e)  of  the  Commission's  Rules  of Practice, Making Findings  and  Imposing  Remedial  Sanctions  (Order) against Lindsey Vinson. The Order finds that Vinson, from Fort  Worth, Texas, is an attorney who from October 2003 through Jan. 29, 2004, was president and chairman of the board  of  directors  of  Moliris  Corp. (Moliris). The Order also finds  that  from  Jan.  29,  2004,  through  August 2005, Vinson functioned as the de facto principal executive and principal financial officer of Moliris.  The administrative proceedings were based on  a  permanent  injunction  entered against Vinson on Dec. 11, 2006, by the  U.S.  District  Court for the Northern District of Texas, Dallas  Division, enjoining  Vinson, by consent, from future violations of  the  securities laws.  The Commission's complaint alleged that from about October 2003 through August 2005, Vinson, who had been previously enjoined  by a federal court  from  violating  the  federal  securities  laws:  (a) concealed his control of Moliris, (b) approved the filing of false and misleading Commission reports, and (c) in an attempt  to  profit  from his activities, arranged for Moliris's stock to be listed and publicly traded on the OTC  Bulletin  Board  (OTC-BB)  without  disclosing  his continuing role at Moliris, his SEC disciplinary  background  and  his prior bankruptcies. After having obtained the OTC-BB  listing,  Vinson participated in the public release of false  information  regarding  a change in Moliris's line of business and its business prospects. While engaging  in  the  alleged  misconduct,  Vinson  used  Moliris's  bank accounts to pay a variety of personal expenses.  The Order suspends Vinson from appearing or practicing as an  attorney before the Commission. Vinson consented to the issuance of  the  Order without admitting or denying the findings in the Order except that  he admitted the entry of the injunction. (Rel. 34-55603; AAE  Rel.  2594;   File No. 3-12610)

April 10, 2007 in SEC Action | Permalink | Comments (0) | TrackBack (0)

NASD Issues Investor Alert on Margin

NASD today issued an updated Investor Alert warning investors about the risks associated with trading on margin. Since the release of a previous Alert on this topic in 2003, the amount of debt taken on by investors to buy securities has reached a record high of $321.2 billion in February 2007.  "We are concerned too many investors are unaware they could suffer substantial financial losses by using debt to purchase securities," said Mary L. Schapiro NASD Chairman and CEO. "By updating our Alert on this topic, we hope to remind investors not to underestimate the risks involved." See NASD Warns Investors of the Risks Associated with Using Margin to Purchase Securities and Investing with Borrowed Funds: No "Margin" for Error.

April 10, 2007 in Other Regulatory Action | Permalink | Comments (0) | TrackBack (0)

Talk of $45 Billion LBO of Bell Canada

The latest talk about next biggest LBO ever -- it is reported that the Ontario Teachers' Pension Plan and other investors are negotiating a $45 billion LBO of Bell Canada.  See NYTimes, Report of Talk to Take Over Bell Canada.

April 10, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

Citigroup Plans to Reduce Compliance Staff

Under pressure to become a "leaner, thinner" Citigroup, the company is expected to announce measures for cost-cutting and reductions in personnel, especially in its compliance departments.  Citigroup had increased compliance after several scandals in recent years, including Enron.  See NYTimes, Citigroup’s Revamp May Trim Its Compliance Corps.


April 10, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

Glass Lewis Calls on Times Shareholders to Withhold Votes

Proxy advisor Glass Lewis & Co. joins ISS in urging the Class A shareholders of the New York Times to withhold their votes from directors in a show of dissatisfaction with the newspaper company's dual class stock structure that perpetuates control by the Sulzberger-Ochs trust.  Glass Lewis specifically calls for a separation of the positions of chairman and publisher (both held by Arthur Sulzberger) and for a majority of directors on the compensation committee to be elected by Class A stock.  See NYTimes, 2nd Group Urges Withholding Times Co. Vote.

April 10, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

China Issues New Insider Trading Rules

China's securities regulators issued new rules regulating insider trading.  Under the rules, senior managers may not sell more than 25% of the company shares they held at the end of the previous year.  They also may not trade stocks within one year of a firm's public listing, or within six months of leaving the company and may not trade in the company's securities thirty days before regular reports, or ten days before performance forecasts.  See WSJ, China Revises Insider Rules.

April 10, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

Defense Rests in Nacchio Insider Trading Trial

The  defense rested yesterday in the insider trading trial of Joseph Nacchio, former Qwest Communications CEO, without any of the anticipated drama.  Nacchio did not testify, and the pre-trial reports of a defense based on classified information about lucrative military contracts was not presented.  Instead, the defense centered on Nacchio's despondency after the death of his son.  The defense expert witness was Daniel Fischel, former Dean at University of Chicago Law School.  See NYTimes, Defense Rests in Trial of Ex-Qwest Chief; WSJ, Nacchio's Defense Team Rests

April 10, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

Monday, April 9, 2007

Securities Industry '06 Profits a Record High

The US securities industry had a record breaking year in 2006, reporting full-year profits of $33.1 billion – 88.2% above the $17.6 billion earned in 2005, and 4.7% above the previous record of $31.6 billion in 2000.  See SIFMA press release, Securities Industry ’06 Profits Complete Record Breaking Year.

April 9, 2007 in Professional Announcements | Permalink | Comments (0) | TrackBack (0)

SEC Charges in Unregistered Securities over the Internet

The SEC announced today that it filed a complaint on April 5 in the United States District Court for the Northern District of  Georgia to halt the sale of unregistered securities by Global  Online  Direct, Inc., a Nevada corporation  headquartered  in  Union,  Ore.,  and  its principals, Bryant E. Behrmann of Las Vegas, Nev., and Larry "Buck" E. Hunter of La Grande, Ore.  The SEC charges that, since at least  October 2005, Global, Behrmann  and  Hunter  have  conducted  an  unregistered offering of securities through the provision of interests in  Global's "Secured Profit Inventory Program" (SPIP). The complaint alleges  that Global, Behrmann and Hunter primarily promoted Global's  SPIP  through the internet and solicited investors to "loan" Global funds for a term of one-year in exchange for  promised  daily  interest  payments.  The greater the amount of the purported loan,  the  greater  the  interest    payments Global offered to investors. Global initially  offered  daily interest rates to investors of 0.20% per day for amounts up  to  $100,  which it referred to as the "Start-Up" plan, and for investors willing    to invest $10,000 or more, they could  participate  in  Global's  "Big Dawgs Club" and receive 1.00% daily interest. Global  further  offered investors the ability to lock-up access to their interest payments for    one-year in exchange  for  100%  daily  compounding  on  all  interest payments. Global therefore offered investors effective annual rates of return of more than 1,100%. In order to generate revenue sufficient to pay investors their promised returns, Global claimed to pool  investor proceeds to purchase discounted and low-cost inventory,  which  Global then purported to resell  through  various  online auction  websites, including Ebay and Yahoo! Auctions, as well as through  flea  markets, street sales and retail storefronts. From October 2005  through  March 2007, the complaint  alleges  that  Global  raised  approximately  $15 million from more than 8,000 investors.

April 9, 2007 in SEC Action | Permalink | Comments (0) | TrackBack (0)

SEC Alleges Pump and Dump Identity Theft Scheme

The SEC announced that  it  obtained  a  temporary  restraining order and an emergency asset freeze  to  halt  a  market  manipulation scheme that used stolen identities of innocent victims  to  manipulate the markets.  In an emergency federal court  action  filed  April  5,  in  the  U.S. District Court for the Southern District of New York,  the  Commission charged Alexis Ampudia, a 22-year old Panamanian citizen and  resident of Brooklyn, N.Y., with conducting a fraudulent scheme  involving  the manipulation of the prices of numerous securities by  using  brokerage accounts he had opened in the names of identity theft victims, without their  knowledge  or  consent.  The  Commission  alleges  that,  since November 2006, Ampudia made at least $140,000 in unlawful  profits  by manipulating  the  securities  of  at  least  five   publicly   traded companies.  The Commission's complaint alleges that Ampudia first purchased shares of small, thinly-traded companies, with low share prices, through  his own online trading account.  Immediately  or  soon  thereafter,  using online brokerage accounts Ampudia had opened in the names of  identity theft victims, Ampudia placed a series of large  purchase  orders  for the  targeted  securities,  for  the  sole  purpose  of   artificially increasing the price of the securities he had just purchased at  lower prices.  These  purchases  created  buying  pressure  and  the   false appearance of legitimate trading activity, which caused the  price  of the securities to greatly increase. Ampudia then, at  a  profit,  sold the shares he had earlier purchased in his own account.

April 9, 2007 in SEC Action | Permalink | Comments (0) | TrackBack (0)

Privatization of Stock Markets

According to the Federal Reserve, last year a total of $548 billion of stock was taken out of the public markets, either in company stock buybacks or going-private transactions.  See WSJ, Shares Head
To the Sidelines: At What Cost?

April 9, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

Buffet Acquires Stake in Railroad

Warren Buffet's Berkshire Hathaway announced in a SEC filing that it had acquired 10.9% of Burlington Northern Santa Fe, becoming the railroad's largest shareholder.  See NYTimes, Berkshire Says It Has Acquired 10.9% Stake in Burlington Northern.

April 9, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

Would-Be Buyers Critical of TXU

The $32 billion LBO of Texas utility TXU is not going smoothly, as the private equity firms KKR and TPG criticized the company for threatening to close power plants because of a dispute with Texas regulators.  TXU later apologized and said it didn't mean it.  See WSJ, TXU Threat To Shut Plants Angers Buyers.

April 9, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

Rich Men and Failing Businesses

The Wall St. Journal asks why the rich guys want to buy the businesses the rest of the market shuns and looks at the recent bids of Kerkorian (for Chrysler), Zell (for the Tribune) and Icahn (for Lear Corp. and WCI Communities).  Among the reasons it gives:  the companies are cheap, the buyers are counting on taking on more debt and looking toward the longterm, when they'll be able to take them public again.  Or maybe it's because they have more money than they know what to do with.  See WSJ, Why Flush Financiers Court Unloved Businesses.

April 9, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

More Big-Bucks Executive Compensation Disclosed

A New York Times column reads the fine print of the executive compensation disclosure in some proxy statements and looks for the bottom line of the new SEC rules.  Some of the items have been previously reported (like the $415.5 million of Occidental Petroleum's CEO Irani, which includes stock options and deferred stock), some is new -- like the $184,555 paid to Pfizer's independent compensation consultant last year.  See NYTimes, More Nuggets on Pay From Proxy Filings. A Wall St. Journal article gives more numbers and offers advice to boards: Ten Ways to Restore Investor Confidence In Compensation.

April 9, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

Sunday, April 8, 2007

Perspective on The Past Week's Stories

The most important news this week (although widely expected) is the SEC's announcement that it will ease 404 controls on small corporations.  The story that got the most headlines is real estate magnate Sam Zell's winning bid in the auction of the Tribune Co. and his plans for the company's future (although all the headlines might reflect newspapers' interest in one of their own).  Other important events:  New Century Financial, the poster child for the subprime mortgage industry, entered bankruptcy, and Kirk Kerkorian once again sets his sights on Chrsyler, announcing that he will bid $4.5 billion.

April 8, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

Lynch on Credit Derivatives

Credit Derivatives: Industry Initiative Supplants Need for Direct Regulatory Intervention. A Model for the Future of U.S. Regulation?  by JOHN T. LYNCH , University at Buffalo Law School, was recently posted on SSRN.  Here is the abstract:

A brief introduction to credit derivatives and the state of the current market is given as a means to orient the reader as to the complexity and evolving importance of these financial instruments. This comment then offers a detailed survey of the recent developments in the credit derivatives market from 2005-2006, focusing on the initiative by the market participants that were called to action by the Federal Reserve Bank of New York. This model of shifting market control to the private sector is then explored as a central tenet of a revised U.S. financial regulatory structure, proposed in this comment as a means to increase the efficiency of regulation and maintain U.S. competitiveness in the global arena by consolidating regulatory authority, moving to a principles-based approach of regulation and allowing those best situated to understand and respond to the needs of the modern financial markets to determine the rules and practices by which they will be governed, i.e. the actual market participants.

April 8, 2007 in Law Review Articles | Permalink | Comments (0) | TrackBack (0)