October 6, 2007
Pension Plan Acquires Glass Lewis
Xinhua Finance sold proxy advisory firm Glass Lewis to the Ontario (Canada) Teachers' Pension Plan for $46 million. Xinhua acquired Glass Lewis just last year for $45 million, a move that caused two Glass Lewis executives to resign. WSJ, Glass Lewis: New Owner, Conflict?
Whole Foods Completes Investigation on SEO's Internet Musings
Whole Foods said a special board committee completed its investigation into CEO John Mackey's internet postings and submitted its report to the SEC. The company did not release the committee's findings and said that it continued to support Mackey. WSJ, Whole Foods Ends Probe Of CEO Web Postings.
Merrill Lynch Reports Third Quarter Loss
Merrill Lynch took a $5.5 billion hit to its 3d quarter earnings, reflecting its deep involvement in, and lack of supervision over, the mortgage-backed securities business. On Wednesday Merrill let go two of its top credit-market executives. WSJ, Merrill's $5 Billion Bath Bares Deeper Divide.
October 5, 2007
Feds Start Investigation into Bear Stearns Funds
Federal prosecutors are investigating two Bear Stearns mortgage-related hedge funds that were shut down in July with losses to investors of $1.6 billion. Bear Stearns Chair James Cayne says the worst is over for the firm, two weeks after the company reported third quarter losses. WSJ, Prosecutors Begin a Probe Of Bear Funds; NYTimes, Bear Stearns, on Upswing, Sees No Need to Seek Cash.
States Investigate State Street Bond Funds
Some state attorneys general are looking into possible law suits against State Street Corp. over losses their state retirement funds suffered investing in two "enhanced index" bond funds. Marketed as low-risk investments, the funds made aggressive bets on mortgage-backed securities and derivatives. Prudential Financial brought suit this week on similar allegations. WSJ, State Street Blues: Fund Woes Linger.
Conference and Commentary on Stoneridge Investors
Case Western Reserve University School of Law, in connection with its Stoneridge Investors conference today (webcast live beginning at 8:45 a.m.), has an excellent site with the amici briefs and other commentary.
With oral argument in Stoneridge Investors set for next Tuesday, interest in the case is running high. A Washington Post article reviews the facts and the case's significanc. WPost, High Court's Fraud Case Widely Seen as Stand-In for Enron.
October 4, 2007
SEC Charges Broker with Swindling 9/11 Widow
On October 4, 2007, the SEC filed a civil injunctive action in the United States District Court for the Eastern District of New York charging a broker with fraudulently misappropriating nearly $250,000 from the widow of a Port Authority police officer who died at the World Trade Center on September 11, 2001 (the "Customer"). The stolen funds were part of the compensation the Customer received in 2004 from the September 11th Victim Compensation Fund of 2001 (the "Fund"). The broker named in the complaint, Kevin James Dunn, Jr. ("Dunn"), was employed by MetLife Securities, Inc. ("MetLife") at the time of the fraud.
The Commission's complaint specifically alleges as follows: Dunn was friends with the Customer and convinced her to invest her entire recovery from the Fund with MetLife and allow him to manage the investment. Dunn then proceeded to betray the Customer's trust by engaging in a series of material misrepresentations about the purchase and sale of securities in her account and other fraudulent acts aimed at swindling her out of a substantial portion of the compensation she received from the Fund. From September 2005 through April 2007, Dunn misappropriated a total of $248,000 from the Customer by fraudulently creating a joint account in both of their names, forging her signature on wire transfers from the joint account, and telling her outrageous lies about the status of her securities investments to deceive her into providing him with blank checks that he deposited into his own bank account. Although MetLife terminated Dunn in February 2007, he continued to defraud the Customer for another two months by acting as if he was still employed as a broker at MetLife and deceiving her into giving him additional blank checks.
Dunn is charged with violating Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities and Exchange Act of 1934 and Rule 10b-5 thereunder. In the complaint, the Commission seeks permanent injunctive relief, disgorgement, and civil penalties.
In a parallel proceeding, the United States Attorney's Office for the Eastern District of New York today filed criminal charges against Dunn for the same conduct.
SEC Director of Market Reg Testifies on Consolidated Supervision
Testimony Concerning the Consolidated Supervision of U.S. Securities Firms and Affiliated Industrial Loan Corporations, by Erik Sirri, Director, Division of Market Regulation, U.S. Securities & Exchange Commission, Before the Committee on Banking, Housing, and Urban Affairs, United States Senate
October 4, 2007.
SEC Says Anti-Spam Initiative is Working
The SEC reports that as a result of its Anti-Spam Initiative there has been a significant worldwide reduction of financial spam and spam-related complaints to the SEC's online complaint center are cut in half. Just so we understand the point, it gives us a graph.
Law Profs File Comment Letter on SEC Proxy Access Proposals
Thirty-nine law professors filed a comment letter with the SEC in favor of placing shareholder-proposed bylaw amendments on the corporate ballot. The comment letter urges the SEC not to adopt either one of the two proposals it is now considering to allow companies to exclude some or all shareholder-proposed bylaw amendments concerning shareholder nomination of directors. The SEC, it argues, should avoid producing impediments to shareholders' exercise of their right under state law to initiate bylaw amendments concerning shareholder nomination of directors. According to Professor Lucian Bebchuck, there is substantial disagreement among the law professors submitting the comment letter regarding the substantive merits of proxy access bylaws, and thus as to whether shareholders would benefit from adopting such bylaws. All members of the group are unanimous, however, in their belief that shareholders should be allowed to make the decision on this subject for themselves, and that companies should not be allowed to make the decision for them by excluding proposed bylaw amendments from the corporate ballot.
Whitworth Dissatisfied with Sprint's Performance
The Wall St. Journal highlights investor activist Ralph Whitworth. With a 1.9% stake in Sprint Nextel Corp., he is pushing for change at the company. This can't make CEO Gary Forsee happy. Last year Whitworth played a key role in the ousters of two CEOs, Home Depot's Nardelli and Sovereign Bancorp's Sidhu. WSJ, Investor Steps Up Pressure on Sprint.
October 3, 2007
Casey Speaks Before NASAA Conference
An excerpt from Speech by SEC Commissioner Kathleen L. Casey, at the North American Securities Administrators Association Annual Conference, Seattle, Washington, October 1, 2007:
In recent months, the Commission has also been asked to evaluate our private class action system. This summer, several Representatives from the U.S. Congress asked us to consider whether the securities class action system adequately complements our enforcement efforts. And in August, a group of 6 noted professors asked us to explore a purely economic consideration: does the private litigation system achieve an efficient wealth redistribution objective, or are the transactions costs unnecessarily high?
SEC Obtains Injunctive Relief Against Long Island Investment Adviser
The SEC announced today that on August 27, 2007, the United States District Court for the Eastern District of New York entered a preliminary injunction order ("Order") against Peter J. Dawson, BMG Advisory Services, Inc., and Ethan Thomas Co., Inc. The Order also freezes the Defendants' assets and the assets of Defendant Dawson's spouse, Lisa Dawson.
The Commission's complaint, filed on November 30, 2006, alleges that the Defendants misappropriated more than $2 million from at least seven investment advisory clients. Dawson, the president and sole shareholder of BMG and Ethan Thomas, targeted primarily elderly investors living on Long Island, and advised these clients to surrender existing variable annuity policies, mortgage their residences, and transfer the proceeds to Ethan Thomas for Dawson to manage through BMG, his investment advisory firm. In connection with Dawson's advisory services, Dawson made materially false and misleading statements to his clients about their investments and the use of their funds. Dawson promised between a 12 and 15 percent guaranteed return on each investment, and he assured clients that he would arrange to pay their mortgages and/or pay monthly "returns" on the investments. To the extent that the 12 to 15 percent return exceeded the client's mortgage obligation, Dawson promised that excess return would be accrued in the client's account. Rather than investing the money as promised, Dawson withdrew over $100,000 of his clients' funds for his own benefit. At the same time, Dawson failed to make investors' mortgage payments as he had promised. In October and November 2006, because some investors received notices that their mortgages were not being paid, they complained to Dawson, who refused to return their calls and closed BMG's office.
SEC Approves FINRA Rule on Representation of Parties
The SEC approved a new FINRA rule relating to representation of parties in arbitration and mediation. Previously it was unclear whether out-of-state attorneys and non-attorney representatives could represent parties in SRO arbitrations. The new rule provides that these issues are determined by applicable state law. Non-attorney representatives, however, are prohibited if they are suspended or barred from the securities industry or suspended or disbarred from the practice of law. The rule codifies existing practice allowing pro se representation.
Paulson Appoints Committee to Study Auditors
Treasury Secretary Paulson has appointed a 21-person blue-ribbon committee to study changes in the auditing profession since Sarbanes-Oxley and make recommendations by summer 2008. Co-chairs will be former SEC Chair Arthur Levitt and former SEC chief accountant Donald Nicolaisen. WSJ, Auditing the Auditors After Sarbanes-Oxley.
Citigroup Will Buy The Rest of Nikko Cordial
After announcing big losses yesterday because of the US credit markets, Citigroup announced plans to buy the remaining one-third of the Japanese brokerage firm Nikko Cordial Corp. that it doesn't already own for $4.6 billion. Its strategy is to increase profits outside the US to 60%, up from its current just-below 50%. WSJ, How Nikko Cordial Can Help Citigroup.
Nasdaq Is Buying Boston Stock Exchange
It's not London, but Nasdaq announced it is buying the Boston Stock Exchange for $61 million, to expand its domestic trading and enter the clearing business. NYTimes, A Purchase by Nasdaq; WSJ, Nasdaq to Buy Boston Stock Exchange.
Deutsche Bank Will Take $3.3 Billion Charge
Deutsche Bank will take charges for the third quarter of up to $3.3 billion on leveraged loans, structured credit products and mortgage-backed securities. Unlike other big banks, It will still show a profit due to one-time gains, including sale of NYC property. WSJ, Deutsche Bank to Take $3.3 Billion Charge
On Leveraged Loans, Credit Products.
October 2, 2007
Casey on Financial Reporting Convergence
Remarks Before the Global Financial Reporting Convergence Conference, by Commissioner Kathleen L. Casey, U.S. Securities and Exchange Commission, Financial Executive International and the European-American Business Council, New York, New York, September 28, 2007.
Nazareth Announces Her Departure
It's official -- Annette Nazareth announced that she is leaving the SEC to return to the private sector. She has served nine years at the Commission, as a Commissioner and previously as Director of the SEC’s Division of Market Regulation. Ms. Nazareth has not set a date for her departure from the Commission, but has notified President Bush that she does not wish to be re-nominated. Her term ended on June 5, 2007, but Commissioners may remain in their positions for up to 18 months beyond a term’s end, unless a successor is appointed sooner