Wednesday, April 11, 2007
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.
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.
Tuesday, April 10, 2007
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.
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)
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.
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.
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.
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.
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.
Monday, April 9, 2007
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.
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.
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.
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?
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.
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.
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.
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.
Sunday, April 8, 2007
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.
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.