Securities Law Prof Blog

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

Wednesday, September 5, 2007

FINRA fines AXA Advsors for Unsuitable Fee-Based Accounts

The regulators continue to fine securities firms for marketing fee-based accounts to investors for whom the arrangement was not suitable because of the infrequency of their trading activity.  FINRA announced  that it has fined AXA Advisors, LLC, $1.2 million for failing to adequately supervise its fee-based brokerage business and distributing misleading sales literature for its fee-based brokerage account program, CapAdvantage, between 2001 and 2005.

FINRA also ordered AXA Advisors to return $1.4 million in fees to approximately 1,800 customers who were inappropriately placed or kept in fee-based brokerage accounts. The firm is voluntarily refunding customers an additional $1.2 million, making the total amount returned to CapAdvantage customers more than $2.6 million. AXA Advisors also unilaterally took steps to enhance its system and procedures and to close accounts that were not appropriate for CapAdvantage. FINRA considered these steps taken by AXA Advisors in determining the sanctions in this case.

FINRA found that AXA Advisors allowed many investors with less than $50,000 in assets to open CapAdvantage accounts. For example, one customer opened a fee-based account with just $2,000 and AXA Advisors assessed fees until the account was depleted of all funds. The firm also allowed numerous customers to maintain accounts in the program and pay for those accounts even though they did no trading for years. For example, one customer maintained an average account balance of more than $3.5 million, but did no trades from 2002 through 2004. Yet, during that period, the firm deducted approximately $73,000 in asset-based fees.

In settling this matter, the firm neither admitted nor denied the charges, but consented to the entry of FINRA's findings.

September 5, 2007 in Other Regulatory Action | Permalink | Comments (0) | TrackBack (0)

D.C. Focuses on Securities Fraud Against Elderly

Quote of the day from SEC Chair Cox: "Every rock that we turned over seemed to have a bug or a worm crawling out underneath.  In each of the sweeps we conducted, we found significant fraud." Fraud perpetrated on the elderly is the focus of two hearings; the specific issues concern "free lunch" investment seminars and bogus titles for advisers claiming special expertise in retirement planning.  Today the Senior Special Committee on Aging will hold a hearing; on Sept. 10 the SEC holds its Second Summit on Seniors.  WPost, Investment Pitches Prey On Elderly.

September 5, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

NYSE Euronext Will Open China Office

China's securities regulators will allow NYSE Euronext to become the first foreign stock exchange to open an office in China.  It will be located in Beijing.  WSJ, China Backs NYSE To Open in China.

September 5, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

Tuesday, September 4, 2007

Home Depot Halfway Through Stock Buyback

About 290 million Home Depot Inc. shares were tendered in response to the company's modified Dutch auction tender offer. Home Depot said it would repurchase 289.6 million shares at $37 a share, or a total of $10.7 billion, bringing to 48 percent of its previously stated goal of a $22.5-billion buyback.  The company will use about $8 billion in net proceeds from its sale of HD Supply, and $2.7 billion in cash for the repurchases., Home Depot Halfway to $22.5b Buyback Goal.

September 4, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

FINRA Proposes Public Access to Historic TRACE Data

FINRA is proposing to adopt a FINRA policy providing for public access to historic TRACE data and to establish fees to offset the costs of developing and maintaining the new Historic TRACE database.  TRACE data is the first complete database of transaction-level pricing information ever compiled on the U.S. OTC corporate bond market.  The transaction data provided will include all transactions reported to TRACE since July 1, 2002, except Rule 144A transactions.

September 4, 2007 in Other Regulatory Action | Permalink | Comments (0) | TrackBack (0)

SEC Market Reg Director to Testify on Credit Markets

Erik Sirri, Director  of  the  Division  of  Market  Regulation at the SEC, will  testify  before  the  House Financial Services Committee on Wednesday, Sept. 5, 2007. Mr.  Sirri's testimony, which concerns recent events in  the  credit  and  mortgage markets, will be delivered at a hearing of the Committee which will be held in Room 2128 of the Rayburn House Office Building at 10:30 a.m.

September 4, 2007 in Professional Announcements | Permalink | Comments (0) | TrackBack (0)

Senate Hearing on Advising Seniors Sept. 5

Both SEC Chair Christopher Cox and NASAA President/ Alabama Securities Commission Director Joseph P. Borg will present testimony on ongoing efforts to protect senior investors from fraud, this Wednesday, September 5, before the U.S. Senate Special Committee on Aging, chaired by Sen. Herb Kohl (D-WI),at a hearing entitled “Advising Seniors About Their Money: Who Is Qualified - and Who Is Not?” The hearing is scheduled for 3 p.m., September 5 in Room 628, Dirksen Senate Office Building.

September 4, 2007 in Professional Announcements | Permalink | Comments (0) | TrackBack (0)

SEC Staff Will Propose Interim Rule on Principal Trading by Dual Registrants

SIFMA has posted on its website an outline of proposed principal trading relief that it says the SEC staff has indicated it would recommend that the SEC adopt on an interim basis effective October 1.  The interim rule would provide relief from the written notice requirement under Section 206(3) of the Investment Advisers Act for principal trades executed with customers on a non-discretionary basis.  It would not address the obligations of a firm under Sections 206(1) or 206(2), and it would be available only to firms registered both as investment advisers and as broker-dealers.  It would apply to any principal trade that does not involve a security issued by the dual registrant or a transaction in which the dual registrant acts as an underwriter (with an exception for offerings of investment grade debt securities).  Firms would be required to provide written notice to and obtain written consent from a non-discretionary investment advisory customer before relying on the interim rule.  The interim rule will have a 24-month sunset provision, which is designed to provide the SEC with time to consider the results of a study being conducted by the RAND Corp.

September 4, 2007 in SEC Action | Permalink | Comments (0) | TrackBack (0)

Nasdaq Sets Deadline for LSE Bids

Nasdaq has set a soft deadline of Friday for expressions of interest in buying its 31% stake in the London Stock Exchange, valued at $1.7 billion.  Nasdaq made two unsuccessful attempts to buy LSE and now needs the cash to finance its bid for the Nordic exchange operator OMX AB, which faces competition from the Borse Dubai.  So far Nasdaq has received no offers for LSE; It appears that a large minority stake in an enterprise that does not want a change of control is not a desirable commodity.  WSJ, Nasdaq Sets a Deadline In Bidding for LSE Stake.

September 4, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

First Data LBO Debt Goes on the Market

This week, in what is expected to be a test of the credit markets, seven banks will be offering for sale $24 billion in loans and bonds to finance the LBO of First Data Corp. to Kohlberg Kravis Roberts.  In the next few months, over $330 billion in LBO debt needs to be financed.  NYTimes, Banks to Test Debt Market This Week; WSJ, LBO Players Will Jockey Over Terms.

The Wall St. Journal's Heard on the Street column reports that the shares of Lehman Brothers are down 30%, just behind Bear Stearns as the worst-performing investment bank.  Lehman is more dependent on the bond market than most of the other investment banks.  WSJ, It's Déjà Vu for Lehman Stock.

September 4, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

Sunday, September 2, 2007

10(b) Scheme Liability Symposium

Case Western Reserve University School of Law is presenting a symposium on Section 10(b) Scheme Liability on October 9, from 8:45 a.m. -- 1 p.m. for those in the Cleveland vicinity.

September 2, 2007 in Professional Announcements | Permalink | Comments (0) | TrackBack (0)

Brown on US Financial Regulatory Structure

The Tyranny of the Multitude is a Multiplied Tyranny: Is the United States Financial Regulatory Structure Undermining U.S. Competitiveness? , by ELIZABETH F. BROWN, University of St. Thomas, St. Paul/Minneapolis, MN - School of Law, was recently posted on SSRN.  Here is the abstract:

If imitation is the highest form of flattery, the United States may feel very flattered by the fact that other nations have modeled many of their regulations governing financial services (securities, banking, and insurance) on U.S. regulations. In fact, the United States government and the American Bar Association have been encouraging other nations to copy the way that the United States regulates financial services for over two decades. Some nations have not only adopted laws and regulations similar to U.S. financial regulations but have enacted legal reforms to permit lawsuits similar to U.S. class actions.

No other nation, however, has sought to copy the federal and state regulatory structure that the United States uses to supervise and regulate financial services. The United States has over 115 federal and state agencies involved in regulating some aspect of financial services and Congress is contemplating adding new agencies to the list.

In fact, the rest of the world is moving in the other direction. Over the past decade fifty nations have consolidated their financial services regulators and sixteen nations, including the United Kingdom, Germany and Japan, have created single financial services agencies. When consolidating their regulators, these nations have streamlined the regulatory procedures and eliminated outdated or duplicative regulations. For example, the UK Financial Services Authority reduced the listing rules for new securities by 40 percent. As a result, these streamlined regulatory structures have given these countries a competitive advantage over the United States.

This article explores how the United States regulatory structure is undermining U.S. competitiveness in the area of financial services. This article examines why the U.S. regulatory structure hinders U.S. competitiveness more than any particular law, such as the Sarbanes-Oxley Act. The article also discusses what actions federal and state regulators could take to minimize the problems created by the current structure and to move towards a more consolidated or integrated regulatory framework.

September 2, 2007 in Law Review Articles | Permalink | Comments (0) | TrackBack (0)

Gulinello on State Mandatory Disclosure

The Mandatory Disclosure of State Corporate Law, by CHRISTOPHER JOHN GULINELLO, Northern Kentucky University - Salmon P. Chase College of Law, was recently posted on SSRN.  Here is the abstract:

The disclosure of information on state corporate law should be high on the agenda of the ongoing mandatory disclosure debate. State corporate law plays a central role in the governance of public firms and despite the intense focus legal academia places on state corporate law, public companies are not required to disclose much information about the corporate law of their respective states of incorporation. This article makes a case for mandating public companies to disclose information about state corporate law as part of their regular disclosures. State corporate law is an important part of the information investors need to evaluate corporate governance risk. Mandatory disclosure of state corporate law would reduce the costs of disseminating information in a market where there are 51 possible jurisdictions for which investors need to research and process information on state corporate law. In addition, mandatory disclosure of state corporate law would better ensure that this information is incorporated into the price of securities when there is a possibility the market largely ignores some important aspects of state corporate law.

September 2, 2007 in Law Review Articles | Permalink | Comments (0) | TrackBack (0)

Ninth Circuit Finds Securities Registered under Form S-8 Were Invalidly Sold to Raise Capital

In SEC v. Phan, 2007 WL 2429365 (9th Cir. Aug. 29, 2007), the Ninth Circuit affirmed the district court's grant of summary judgment for the SEC, finding a violation of section 5 of the Securities Act (sales of unregistered securities),  where the CEO of a financially troubled corporation directed a consultant to resale shares registered on Form S-8 (available for employee compensation shares) to an investor to raise capital for the corporation.  Even if the shares were originally validly issued to the consultant on Form S-8 (an issue on which there were disputed issues of fact), the consultant's resale was not covered by the Form S-8 registration.  The Ninth Circuit, however, reversed the district court's summary judgment in favor of the SEC on the fraud claim, holding that the one undisputed misstatement -- that the consultant would be required to pay $1.25 million in cash upon exercise of the option -- was not material as a matter of law, since there were disputed factual assertions that the consultant promised to give a promissory note in lieu of cash.  The court said it could not hold as a matter of law that reasonable investors would consider the difference between cash and a promissory note material.

September 2, 2007 in Judicial Opinions | Permalink | Comments (0) | TrackBack (0)