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February 3, 2007
Market-Timing Agreement Enforced
In Prusky v. Reliastar Life Ins. Co., 2007 WL 43641 (E.D. Pa. 01/05/07), the court ordered specific performance of a contract that gave plaintiff the right to engage in market-timing in the mutual fund sub-accounts within the variable life insurance policies and rejected the defendant's defense of impracticability.
February 3, 2007 in Judicial Opinions | Permalink | Comments (0) | TrackBack
Frankel & Cunningham on Market Timing
Tamar Frankel and Lawrence Cunningham's paper, The Mysterious Ways of Mutual Funds: Market Timing, is now available on SSRN and is well worth reading for those of us who have read the newspaper accounts but looked for more scholarly analysis of the issues. Here is the abstract:
Abstract:
The term market timing was little known outside the arcane world of mutual funds until state attorneys general from across the country popularized it. The term's innocuous-sounding ring assumed a more pernicious note when the mysterious ways of mutual funds became more transparent. In its pernicious sense, market timing denominates mutual fund insiders using the inscrutable structures of mutual funds to provide benefits selectively to favored participants at the expense of less favored participants.Mutual fund shares are not like common stocks; investments made using these vehicles are unlike those made through traditional securities markets. While the peculiar features of mutual funds were manifested in the contemporary environment, these peculiarities are inherent in the very structure of mutual funds. Regulatory efforts dating to the 1940s recognize these realities and regulatory reforms of the early 2000s struggle to respond in much the way earlier reforms did.
The wide range of reforms that have been adopted and proposed may overlook this reality, however. By correcting this oversight, and unveiling the historical and contemporary landscape, this Article provides more realistic appraisals for increasing the integrity of the mutual fund investment vehicle. Chief among these is a deeper point: critical to sustaining the mutual fund as an important institution in the financial system is a renewed appreciation of concepts of trust and professionalism. [emphasis added: amen to that]
February 3, 2007 in Law Review Articles | Permalink | Comments (0) | TrackBack
EOP Postpones Shareholder Vote in LBO Battle
In what is expected to be the largest LBO to date, Equity Office Properties Trust announced it is postponing next week's shareholder vote on the Blackstone deal for two days, giving Vornado a chance to increase its $46 billion offer. Vornado's is valued higher than Blackstone's, but contains a stock component, while Blackstone's is all-cash. See NYTimes, Vornado Under Pressure to Sweeten Its Bid for Office Landlord. for the Washington Post's take on the situation, see Equity Endorses Blackstone Bid.
February 3, 2007 in News Stories | Permalink | Comments (0) | TrackBack
Profiles of Carl Icahn and Motorola
The NY Times profiles Carl Icahn, in the news this week because of his purchase of a shareholder stake in Motorola. See From Raider to Activist, but Still Icahn . Another story discusses the problems at Motorola, stemming from the cell phone as fasion accessory phenomenon. See Cellphone Envy Lays Motorola Low.
February 3, 2007 in News Stories | Permalink | Comments (0) | TrackBack
Gordon Macklin Remembered
The WSJ has a remembrance of Gordon Macklin, who died this week, and his pivotal role in the transformation of NASDAQ into an electronic trading market. See WSJ, Ushering in Age of the Electronic Stock Market
February 3, 2007 in News Stories | Permalink | Comments (0) | TrackBack
News About Rich Old Men and their Children
The WSJ has two stories about how powerful men and their children get along in business. See WSJ, Sumner Redstone Settles Suit With Son Over Family's Fortune and WSJ, All of Murdoch's Children Receive Big News Corp. Stakes.
February 3, 2007 in News Stories | Permalink | Comments (0) | TrackBack
Herbalife -- The Revolving Door
Herbalife was public, then private, then public, and now announces a bid to go private again by the same equity fund that did the previous deals and remains the largest shareholder. The premium is about 14.8%. See WSJ, Herbalife Receives $2.7 Billion Offer.
February 3, 2007 in News Stories | Permalink | Comments (0) | TrackBack
February 2, 2007
2d Cir. Affirms Dismissal of Deloitte
In Lattanzio v. Deloitte Touche, 2007 WL 259877 (2d. Cir. 1/31/07), the Court upheld the dismissal of a securities fraud class action against the accounting firm arising from alleged misstatements in Warnaco's financial statements. The court held that the requirement that the auditing firm review the unaudited statements did not make the maker of the unaudited statements for purposes of Central Bank and did not give rise to a duty to correct any misstatements. In addition, plaintiffs failed to allege loss causation -- a connection between the misstatements and the losess suffered as a result of Warnaco's bankruptcy. In particular, Deloitte's "going concern" warning would give investors adequate warning of the risk of bankruptcy, even if the underyling financial information was inaccurate.
February 2, 2007 in Judicial Opinions | Permalink | Comments (0) | TrackBack
Highest NY Court to Consider Form U-5 Privilege Issue
An important and unresolved question is whether securities firms can be sued for libel if the information they are required to disclose on Form U-5 about an employee's employment termination is incorrect. The New York Court of Appeals will hear arguments in a case this month that should resolve the split among New York courts between an absolute and a qualified privilege. WSJ gives background on the issue in Some Brokers Can't Flee Past.
February 2, 2007 in News Stories | Permalink | Comments (0) | TrackBack
Improper Accounting Allegations Against Dell
A class action suit was filed in Texas against Dell and its auditors, PriceWaterhouseCoopers, alleging that the computer company engaged in improper accounting practices in its partnership with Intel, to inflate revenues. William Lerach filed the complaint. See WSJ, Dell's Woes Mount as Investors File Improper-Accounting Suit.
February 2, 2007 in News Stories | Permalink | Comments (0) | TrackBack
BackDated Options Little Longterm Effect on Stock Prices
WSJ studies the stock prices of companies that reported backdated stock options and finds that many of them have bounced back shortly after the news broke. While many corporations have had to restate their financial statements, the effect on the bottom line remains substantially the same, and to some investors the drop in price from the bad publicity created buying opportunities. See Buy a 'Backdating' Stock?
February 2, 2007 in News Stories | Permalink | Comments (0) | TrackBack
Blips Illegal, Says Texas Court
A federal district court in Texas ruled that the aggressive tax shelters marketed by KPMG known as Blips were ilegal. The first ruling on the legitimacy of this tax shelter, it is expected to give a boost to the New York prosecutors' case against the accounting firm. See NY Times, Court Rejects Tax Shelter Once Sold by KPMG .
February 2, 2007 in News Stories | Permalink | Comments (0) | TrackBack
SEC Approves Auction to Value Options
New York Times reports on the SEC's tentative approval of an auction approach to valuing stock options that was approved by the SEC staff in a letter to Zion Bancorp, which plans to market the auction of new securities, called "Esoar," to establish the value of companies' stock options. The SEC says that auditors still need to review the results before using the value in the financials. See S.E.C. Approves New Method for Companies to Value Stock Options
February 2, 2007 in News Stories | Permalink | Comments (0) | TrackBack
Senate Report Criticizes SEC Investigation
Senators Specter and Grassley released an interim report critical of the SEC's investigation of hedge fund Pequot Capital Management. “At best, the picture shows extraordinarily lax enforcement by the S.E.C.,” Senate investigators concluded. “At worse, the picture is colored with overtones of a possible cover-up.” The report also suggests that former SEC attorney Gary Aguirre was fired because of his persistence. The Senate inquiry is also looking into whether SEC officials made false statements to the Senate. See NY Times, Senate Report Says S.E.C. Botched Hedge Fund Inquiry.
February 2, 2007 in News Stories | Permalink | Comments (0) | TrackBack
Battle for EOP Continues
Vornado announced it has increased its bid for Equity Office Properties Trust to $56 per share in cash and stock. EOP is the target of competing bids from Vornado and Blackstone, in what would be the largest LBO in the US.
February 2, 2007 in News Stories | Permalink | Comments (0) | TrackBack
February 1, 2007
Houston Attorney Settles SEC Charges of Registration Violations
On February 1, the Commission filed to amend its complaint in a lawsuit against Allixon International Corp., a Delaware corporation based in South Korea, to name Houston attorney Hank A. Vanderkam as a defendant. Vanderkam is the former securities counsel to Allixon. The SEC filed the original lawsuit in November 2005 against Allixon and other defendants to halt an ongoing unregistered distribution of 1.3 million shares of Allixon's common stock.
The amended complaint alleges that Vanderkam participated in the illegal distribution of the 1.3 million Allixon shares, which represented 94% of the company's float. The 1.3 million shares were issued to two offshore entities without a restrictive legend based on Vanderkam's opinion letter that the Allixon stock offering complied with "Section (sic) 504 of Regulation D and the laws of the State of Texas." In fact, the offering failed to comply with the requirements of Rule 504 under Regulation D of the Securities Act of 1933, and the offering was never registered in, and had no connection to, the State of Texas. The two offshore entities, defendants Silver Lake Investments, Inc. and Crescendo Investments Inc., were control persons of Allixon who allegedly sold over 900,000 of the Allixon shares in the Pink Sheets for approximately $4.3 million.
Vanderkam consented to the entry of an agreed final judgment, permanently enjoining him from future violations of the securities-registration provisions and other relief. In addition, the consent order bars Vanderkam from issuing opinion letters under Rule 504 of Regulation D. [SEC v. Allixon International Corp., et al., Civil Action No. 3:05-CV-2260-P, United States District Court for the Northern District of Texas, Dallas Division] (LR-19987)
February 1, 2007 in SEC Action | Permalink | Comments (0) | TrackBack
SEC Settles Fraud Charges Agst Enterasys Asst. Controller
On Jan. 30, 2007, the Commission filed a settled civil fraud action in the United States District Court for the District of New Hampshire against Anthony L. Hurley, the former assistant controller for Enterasys Networks, Inc. and its former parent company, Cabletron Systems, Inc.
The complaint alleges that from March 2000 through December 2001,Hurley participated in a company-wide scheme to fraudulently inflate revenues at Enterasys and its former parent company, Cabletron, and thereby convince the market that Enterasys was a viable independent company with consistently strong revenue growth.
Hurley, without admitting or denying the allegations of the complaint, consented to an injunction against future violations. Additionally, Hurley consented to paying disgorgement in the amount of $24,498, plus prejudgment interest in the amount of $7,526, reflecting the full amount of his ill gotten gains. In a related criminal case, Hurley pled guilty to one count of wire fraud and cooperated with the U.S. Attorney's Office for the District of New Hampshire in the prosecution of U.S. v. Barber et al., Criminal No. 04-126 (D.N.H.). [SEC v. Anthony L. Hurley, Civil Action No. 07cv022, D.N.H.] (LR-19986)
February 1, 2007 in SEC Action | Permalink | Comments (0) | TrackBack
SEC Proposes to Expand its Interactive Data Voluntary Programs
At its Jan. 31 meeting, the Securities and Exchange Commission voted to publish for comment rule amendments that would expand the agency's interactive data voluntary program to enable mutual funds to submit data tagged risk/return summary information. The Commission also voted to propose rules required under the Credit Rating Agency Reform Act of 2006.
February 1, 2007 in SEC Action | Permalink | Comments (0) | TrackBack
SEC Corp Fin Guidance on Exec Comp Disclosure
On Jan. 24, 2007 Corporate Finance issued guidance on Item 402 of Reg. S-X -- Executive Compensation. Eighteen pages in length, there are questions and answers of general applicability, as well as interpretive responses regarding particular situations.
February 1, 2007 in SEC Action | Permalink | Comments (0) | TrackBack
Roger J. Dennis Dean at Drexel
Roger J. Dennis, Professor and Provost at Rutgers-Camden, has been named the Dean at Drexel University's new law school. Roger's scholarship, including MATERIALITY AND THE EFFICIENT CAPITAL MARKET MODEL: A RECIPE FOR THE TOTAL MIX, is well-known to all of us. Congratulations, Roger!
February 1, 2007 in Professional Announcements | Permalink | Comments (0) | TrackBack
NASDAQ-LSE News
If NASDAQ's bid to acquire the London Stock Exchange fails, it will likely to continue to hold on to its 29% stake in LSE, says NASDAQ CEO Greifeld. NASDAQ will likely pursue tie-ins with other exchanges. See WSJ, Nasdaq to Keep LSE Stake, Seek Other Deals.
February 1, 2007 in News Stories | Permalink | Comments (0) | TrackBack
TSE in the News Again
The Tokyo Stock Exchange is in talks about forming an alliance with Chicago Mercantile Exchange, a day after the announcement of its alliance with NYSE, reports the WSJ. Tokyo Stock Exchange Discusses Possible Alliance with Chicago Merc.
February 1, 2007 in News Stories | Permalink | Comments (0) | TrackBack
Vornado-Blackstone Battle over EOP
Vornado is expected to increase its bid for Equity Office Properties in the competition with Blackstone, in what promises to be the largest LBO in the US. See Vornado to Raise EOP Bid
In Latest Shot at Blackstone.
February 1, 2007 in News Stories | Permalink | Comments (0) | TrackBack
Secret Payment Disclosed in Milberg Weiss Firm
A plea agreement filed in federal district court in California says that a Milberg Weiss partner made a secret payment of $175,000 to former opthamalogist Steven Cooperman to serve as lead plaintiff in a class action. The filing does not directly link the payment to Mel Weiss or William Lerach. The firm's spokesperson said the allegation were not credible and old news. See NY Times, New Blow to a Law Firm Under Inquiry.
February 1, 2007 in News Stories | Permalink | Comments (0) | TrackBack
Bush on Exec Compensation, SOX
President Bush told a Wall. St. audience that corporations should link executive pay packages more closely with performance because otherwise investor's trust in the markets could be impacted. He said he disapproved of federal mandating corporate governance practices, but approved of the SEC's new disclosure rules on executive compensation: "I appreciate the fact that the S.E.C. has issued new rules to ensure that there is transparency when it comes to executive pay packages. The print ought to be big and understandable.” The New York Times reports that the ortherwise friendly audience was silent during these remarks. See Bush Tells Wall St. to Rethink Pay Practices. For the WSJ's take on the President's speech, which focuses on his criticsm of SOX 404, see Bush Gives Hope to Foes Of Sarbanes-Oxley Law.
February 1, 2007 in News Stories | Permalink | Comments (0) | TrackBack
SEC Hedge Fund Investigation Still under Investigation
Senators Arlen Specter and Charles Grassley continue to express their displeasure over the SEC's investigation into hedge fund, Pequot Capital Management and say that an interim report reporting their findings will be released today. The SEC inquiry was triggered by fired SEC lawyer Gary Aguirre's charge that he was called off his investigation because of the hedge fund's connections with Wall St. executive John Mack. See NY Times, 2 Senators Renew Attacks on S.E.C. Hedge Fund Investigation
February 1, 2007 in News Stories | Permalink | Comments (0) | TrackBack
Enron Officer's Conviction Vacated
The Texas federal district court threw out the jury verdict against Kevin Howard, former Broadbrand financial officer at Enron, based on the Fifth Circuit's ruling in another Enron case that an empoyee's services in furtherance of corporate malfeasance could not be the basis of a theft of honest services conviction. See NY Times, Judge Throws Out a Conviction in Enron Case .
February 1, 2007 in News Stories | Permalink | Comments (0) | TrackBack
January 31, 2007
Investment Adviser Consents to Prime Bank Fraud
The SEC announced today that, on January 29, 2007, the U.S. District Court for the Northern District of Illinois entered a Final Judgment in the Commission's civil action against Directors Financial Group, Ltd. ("DFG"), an Illinois investment adviser formerly registered with the Commission, and Sharon E. Vaughn, DFG's owner and operator. In addition to relief previously ordered, the Court's Final Judgment requires Vaughn to pay a $200,000 civil penalty. Vaughn consented to the Final Judgment without admitting or denying the allegations of the Complaint.
The Commission filed its Complaint on March 2, 2006, alleging that Vaughn and DFG defrauded their private hedge fund clients in Directors Performance Fund, L.L.C. (the "Fund"). According to the Complaint, Vaughn and DFG, among other things (1) invested the Fund's assets in a fraudulent Prime Bank trading scheme (the "Trading Program") contrary to the Fund's disclosed trading strategy, (2) failed to investigate the Trading Program or its promoters, (3) entered into an undisclosed profit sharing agreement that ceded 25% of the Fund's purported profits to one of the Trading Program's promoters, (4) gave control of the Fund's assets to the Trading Program's promoters in violation of the terms of the Fund's prospectus, and (5) tried to cover up their fraud by withholding documents from — and providing fake documents to — the Commission's exam staff. See SEC v. Sharon E. Vaughn and Directors Financial Group, Ltd., Case No. 06-C-1135 (N.D. Ill.)
January 31, 2007 in SEC Action | Permalink | Comments (0) | TrackBack
Market-Timing Allegations Against CIBC Reps
IN THE MATTER OF MICHAEL SASSANO, DOGAN BARUH, ROBERT OKIN and R.
SCOTT ABRY
On January 31, the Commission issued an Order Instituting Administrative Proceedings against Michael Sassano, Dogan Baruh, Robert Okin and R. Scott Abry, alleging that Sassano and Baruh, former registered representatives with CIBC World Markets Corp. and Fahnestock & Co., Inc., collaborated with numerous hedge fund customers to deceptively market time mutual funds through a variety of deceptive practices. Mutual funds, for example, repeatedly detected Sassano's, Baruh's, and their customers' fraudulent conduct from at least 1999 until September 2003, and sent World Markets and Fahnestock numerous letters and emails complaining about this abusive market timing. In response to the mutual funds' efforts to stop the market timing, Sassano and Baruh used numerous strategies to help their hedge fund customers deceive the mutual funds. Okin, the Head of CIBC's Private Client Services, and Abry, Sassano's and Baruh's branch manager, supervised Sassano and Baruh and knew of, and assisted, Sassano and Baruh's deceptive market timing practices.
The Division of Enforcement seeks cease-and-desist orders, disgorgement, civil penalties, prejudgment interest, and all other remedial sanctions that are appropriate and in the public interest. (Rels. 33-8778; 34-55208; IA-2587; IC-27692; File No. 3-12554).
January 31, 2007 in SEC Action | Permalink | Comments (0) | TrackBack
Former General Counsel of Comverse Consents to Sanctions in Rule 102(e) Proceeding
William Sorin, former General Counsel of Comverse Technologies, consented to sanctions under Rule 102(e) in connection with the backdating stock options scandal involving that company and Kobi Alexander. This follows the entry of a consent injunction in federal district court enjoining Sorin from future violations of federal securities laws. The Commission's complaint alleges, among
other things, that beginning no later than 1991, and continuing through 2001, Sorin engaged in a fraudulent scheme with Comverse's former Chairman and Chief Executive Officer, and from at least 1998 with Comverse's former Chief Financial Officer, to grant undisclosed, in-the-money options to themselves and others, by backdating stock option grants to coincide with historically low annual and quarterly closing prices for Comverse's stock. Among other things, the Commission's Complaint alleges that Sorin created company records that falsely indicated that Comverse's compensation committee had approved a grant of stock options on a date when, in reality, no such corporate action took place. The complaint also alleges that Sorin created false company records that facilitated a similar backdating scheme at Ulticom, Inc., another public company that is a majority-owned subsidiary of Comverse.
January 31, 2007 in SEC Action | Permalink | Comments (0) | TrackBack
Speech by NASD Vice Chair
In a speech before the Securities Traders Association, Doug Shulman, Vice Chair of NASD, addressed a number of issues, including the following: the merger of the NYSE and NASD regulatory arms, the effect of technology and product convergence on the markets, and Regulation NMS.
January 31, 2007 in Other Regulatory Action | Permalink | Comments (0) | TrackBack
NYSE-TSE Alliance Announced
The NYSE and Tokyo Stock Exchange agreed to an alliance that could ultimately lead to cross-listings of securities, in NYSE's latest move toward globalization. See WSJ, Tokyo Exchange, NYSE Agree to Form an Alliance. For more details, see the NYSE press release.
January 31, 2007 in News Stories | Permalink | Comments (0) | TrackBack
Altria Announces Spinoff of Kraft
As expected, Altria announced that it would split up Altria and Kraft Foods. The transaction will take place by the end of March, and Altria shareholders will get .7 share of Kraft for every Altria share they own. WSJ, Altria Board Approves Spinoff Of Company's Kraft Foods Unit.
January 31, 2007 in News Stories | Permalink | Comments (0) | TrackBack
Banks' Buybacks of Shares on the Increase
Banks turn to share buybacks as regulation makes it increasingly difficult to lend money. See WSJ, Capital Idea:Banks Turn To Buybacks.
January 31, 2007 in News Stories | Permalink | Comments (0) | TrackBack
In Defense of Private Equity
Is there a backlash against private equity funds? Yes, says a WSJ columnist, citing Clear Channel Communications, and it is not deserved. The question is why can't public company managers produce the same profits for their shareholders that the private firms do? See WSJ, Private Equity's Successes Stir Up A Backlash That May Be Misdirected.
January 31, 2007 in News Stories | Permalink | Comments (0) | TrackBack
Investing Club in Trouble with Investors
BetterInvesting, a NFP umbrella group of investment clubs, once riding high, is facing dissension from many of its mostly senior volunteers, who question its high expenses and governance practices. Meanwhile, it is trying to recruit new investors, particularly teenagers, and has received a grant to teach investing to high schoolers. See WSJ, Peeved Members Of Investing Clubs Turn on Leaders.
January 31, 2007 in News Stories | Permalink | Comments (0) | TrackBack
Icahn's Interested in Motorola
Carl Icahn is at it again. He announced yesterday that he is seeking a seat on the board of directors of Motorola. He has only a 1.4% interest in the company, whose stock prices has been in a decline for some months. Last year, Icahn threatened Time-Warner with a proxy contest before backing down. See NY Times, Icahn Seeks Board Seat at Motorola. The story also makes page one of the WSCJ, Icahn Bid Adds To Woes Dogging Motorola's CEO.
January 31, 2007 in News Stories | Permalink | Comments (0) | TrackBack
Investors Love Tobacco
The New York Times features Altria's proposed spinoff of Kraft Foods, in an article discussing investors' positive reactions about the spinoff and the tobacco industry. Altria's a cash cow -- although regulation of smoking increases, people still smoke and apparently will pay any price for cigarettes. See Tobacco’s Stigma Aside, Wall Street Finds a Lot to Like .
January 31, 2007 in News Stories | Permalink | Comments (0) | TrackBack
January 30, 2007
PIPE Offering Fraud Action Settled
The Commission's complaint alleged that, during 2001, Pollet traded in the
securities of ten public companies after receiving confidential non-
public information that these entities were either engaged in, or were
contemplating engaging in, "PIPE" financings. A "PIPE" is a private
investment in public equity. Specifically, the complaint alleged that
Pollet routinely sold short the publicly traded securities of the PIPE
issuers prior to the close of the PIPE transaction in order to lock in
gains for SG Cowen's proprietary account.
January 30, 2007 in SEC Action | Permalink | Comments (0) | TrackBack
NYSE, TSE Alliance Expected
The Tokyo Stock Exchange is "very close" to an agreement on an alliance with the NYSE, according to TSE's chief executive. John Thain, head of NYSE, predicts that this should eventually led to uniform regulation of cross-border transactions. WSJ, NYSE, Tokyo Stock Exchange Are 'Very Close' to an Alliance.
January 30, 2007 in News Stories | Permalink | Comments (0) | TrackBack
BackDated Stock Options an Issue in Battle for Caremark
Did a promise of protection against charges of backdating stock options cause Caremark's board to favor CVS's bid for the company over Express Scripts? So alleges Express Scripts in a lawsuit charging the Caremark board with breaching its obligations to obtain the best price for the shareholders. See WSJ, Caremark Options Probes Ruffle Deal.
January 30, 2007 in News Stories | Permalink | Comments (0) | TrackBack
No Longer Plain Vanilla Index Funds
Index funds with high fees? That's the new product in the funds industry, as companies create higher-risk index funds with a specific focus -- as a fund that index dividend-paying stocks or stocks of companies that are buying back their own stock. See WSJ, Investors Bombarded By Index-Fund Choices.
January 30, 2007 in News Stories | Permalink | Comments (0) | TrackBack
London's AIM Attracts U.S. Small Caps
Clara Furse, the CEO of the London Stock Exchange, writes a WSJ commentary on the Alternative Investment Market (AIM) of the LSE and how it is attracting U.S. small caps to its market. In the last 12 months, 23 U.S. companies have joined, raising a total of over $1 billion in capital. See Taking AIM at Small Caps.
January 30, 2007 in News Stories | Permalink | Comments (0) | TrackBack
Congress Tackles Executive Pay
Congress has attached to the bill raising the minimum wage a provision that caps at $1 million per year the amount of deferred compensation. Other attempts to limit executive compensation may follow. See WSJ, Strike One for Executive Pay.
January 30, 2007 in News Stories | Permalink | Comments (0) | TrackBack
SEC Approves Use of Market Forces to Value Employee Stock Options
The SEC, for the first time, has approved a market-based method for valuing employee stock options in a letter to Zions Bancorp. The move could lead to reduced reported values for the options. See SEC Clears Market-Based WayTo Value Staff Stock Options.
January 30, 2007 in News Stories | Permalink | Comments (0) | TrackBack
Chinese Stock Market Overheated?
The WSJ reports that, the Chinese stock market boom is drawing more investors to the capital and, with it, risky practices familiar to the U.S. dot.com era -- including using funds borrowed from credit card companies and mortgage on the house to invest in the market. See Stock Frenzy In China Stokes Official Concern.
January 30, 2007 in News Stories | Permalink | Comments (0) | TrackBack
January 29, 2007
SEC Commissioner Atkins on Hedge Fund Regulation
SEC Commissioner Paul Atkins spoke on hedge fund regulation at the Ninth Alternative Investment Roundup on Jan. 29. He reviewed the history of attempted regulation of hedge funds, including the SEC's controversial rule -- invalidated last summer by the D.C. Circuit -- that would have required registration of hedge fund advisers. He also discussed the narrower proposed rule put out for comment in December which will clarify the SEC's authority to bring enforcement actions against investment advisors for fraud against investors and will narrow the pool of investors eligible to invest in hedge and private equity funds. On the latter, the Commissioner expressed concern about the rule as a barrier to entry for newly established hedge fund advisors.
January 29, 2007 in SEC Action | Permalink | Comments (1) | TrackBack
Proposed SRO Rules re. Short Interest Reporting
The National Association of Securities Dealers, the New York Stock
Exchange, and the American Stock Exchange filed proposed rule changes
(SR-NASD-2006-131; SR-NYSE-2006-111; SR-Amex-2007-05) to increase the
frequency of the short interest reporting requirements. Publication is
expected in the Federal Register during the week of January 29. (Rel.
34-55170)
January 29, 2007 in Other Regulatory Action | Permalink | Comments (0) | TrackBack
SEC Reports on Administrative Proceedings
Reports on Administrative Proceedings for the Periods April 1, 2005,
through Sept. 30, 2005; Oct. 1, 2005, through March 31, 2006; and
April 1, 2006 through Sept. 30, 2006, have been issued, giving summary
statistical information on the Commission's administrative proceedings
caseload. The reports are published in the SEC Docket and appear on
the Commission's website. (Rels. 34-55166, 34-55167 and 34-55168)
January 29, 2007 in SEC Action | Permalink | Comments (0) | TrackBack
Investment Bank and Securities Dealing Receipts Up 25 Percent
Census Bureau Reports Revenue in the investment banking and securities dealing industry reached $158.9 billion in 2005, a 25 percent increase from $127.3 billion in 2004, according to a report released today by the U.S. Census Bureau. This industry is rebounding from two years of declining revenues [...]
January 29, 2007 in News Stories | Permalink | Comments (0) | TrackBack
MBIA Settles Securities Fraud Charges for Misuse of Reinsurance Contracts
The Securities and Exchange Commission announced settled securities fraud charges against MBIA Inc., one of the nation’s largest insurers of municipal bonds, arising out of a sham reinsurance transaction that was restated in 2005, which the company had previously entered into to avoid having to recognize a $170 million loss. MBIA suffered the loss when, in 1998, the Allegheny Health, Education and Research Foundation (AHERF) defaulted on bonds guaranteed by MBIA and MBIA was forced to make good on its guarantee. MBIA addressed analyst concerns about its expected losses on the AHERF bonds by representing that it had obtained reinsurance to cover them. In fact, MBIA had agreed through concessions on other reinsurance agreements to compensate the reinsurers for the losses they were certain to incur on the AHERF contracts. The improper use of the reinsurance contracts enabled MBIA to convert what would otherwise have been the company’s first-ever quarterly loss into a profit and reverse the decline in MBIA’s stock price.
Under the settlement, MBIA consents to a cease-and-desist order, to pay a $50 million penalty, and to retain an independent consultant to examine a number of other specified transactions to which MBIA was a party.
January 29, 2007 in SEC Action | Permalink | Comments (0) | TrackBack
ICC Criticizes SEC's Changes to Exec Compensation Rules
The Council on Institutional Investors criticize the SEC's changes to the executive compensation rules made last December without public comment. The SEC said at the time that the changes were just revisions to conform to its original intent. The changes will allow some corporations to report lower values for some stock option grants. In its letter ICC wrote that it is "questionable" whether the new requirements will make information easier for investors to understand and noted that support for the changes did not "appear to include a single investor or investor-based organization." See Investors Say SEC Rushed Rule
January 29, 2007 in News Stories | Permalink | Comments (0) | TrackBack
EOPT LBO Gets the Nod from ISS
Equity Office Properties Trust announced that ISS favored Blackstone's $54 per share bid for the company that tops the bid of rival bidder Vornado. The shareholders' meeting is scheduled for Feb. 5. It would be the largest LBO to date. See Blackstone Offer Favored.
January 29, 2007 in News Stories | Permalink | Comments (0) | TrackBack
Newspapers Restore Stock Tables
Some newspapers' cost-cutting measures have hit a snag as readers complain bitterly about the elimination of the stock tables. Both the WSJ and Washington Post announced that they will restore some of the tables, despite the fact, as the Washington Post put it, that most readers get their stock tables for free online. See Vocal Minority Wants the Stock Tables Back.
January 29, 2007 in News Stories | Permalink | Comments (0) | TrackBack
SEC Quiet Period Reform Not Making Much Impact
The liberalization of SEC regulations in June 2005 to allow more public communications in the pre-IPO period has not yet resulted in more information during the quiet period, according to the WSJ. However, well-established public corporations have taken advantage of the expanded use of the shelf-regulation offerings. See In the 'Quiet Period,' Mum's Still the Word.
January 29, 2007 in News Stories | Permalink | Comments (0) | TrackBack
SEC Investigation into Mutual Funds" Stock Lending Practices
An SEC investigation uncovers widespread violations of procedures in stock-lending practices of mutual funds and directors' failures to provide oversight, the WSJ reports. See SEC Discovers Breaches In Lending of Securities.
January 29, 2007 in News Stories | Permalink | Comments (0) | TrackBack
Hedge Fund Sues under Federal False Claims Act
In a new strategy, a hedge fund holding a short position in Allied Capital Corp. sues under the Federal False Claims Act, alleging that an ACC subsidiary defrauded the government out of millions of dollars. See Greenlight Heads to a Courtroom .
January 29, 2007 in News Stories | Permalink | Comments (0) | TrackBack
January 28, 2007
Vinson & Elkins Dismissed from Enron Class Action
On Jan., 24, 2007 the district court granted plaintiff's motion to dismiss the law firm of Vinson & Elkins from the Enron class action. In re Enron Securities Litig. (S.D.Tex. 1/24/07). The court recognized that "many class members and the public at large may be angered by the dismissal of Vinson & Elkins...without a trial to determine whether they are liable for defrauding shareholders, especially in the wake of the numerous allegations made against them by Lead Plaintiff for years," but upheld the plaintiff's right to control its suit and to pursue the "deepest pockets."
January 28, 2007 in Judicial Opinions | Permalink | Comments (0) | TrackBack
Recent Scholarship
The Once and Future New York Stock Exchange: The Regulation of Global Exchanges
ROBERTA S. KARMEL
Brooklyn Law School
Abstract:
The NYSE Group, Inc., the parent of the New York Stock Exchange, Inc. (“NYSE”), and Euronext NV (“Euronext”), are planning to merge, creating the first trans-Atlantic linkup of stock and derivatives markets. At least three reasons for a merger between the NYSE and Euronext have been put forward. First, is the idea that investors will be able to buy stocks in the U.S. and Europe, thus making it more attractive and cheaper for them to buy foreign shares. The NYSE and other U.S. exchanges have been losing listings, and especially IPOs to European exchanges and merging with a European exchange may be a way to recapture the fees and trading profits from these listings. A second justification for the NYSE-Euronext merger is that it will give the NYSE a derivatives platform. When two exchanges combine, they can cut staff and share technology. A third reason that has been asserted for the creation of a global exchange by the NYSE is that the NYSE and Euronext will be able to operate from a common trading platform.Despite the several sound reasons for a trans-national merger between exchanges, stock exchanges cannot compete as ordinary business enterprises because of the manner in which they are regulated and because they function as self-regulatory organizations. Unless such regulation is significantly changed, the effort by exchanges to become global companies will be impeded. This paper will discuss the impediments to the creation of a global exchange posed by the U.S. federal securities laws and how these laws could be changed to permit the possible synergies of a combination between the NYSE and a foreign exchange to be better achieved.
January 28, 2007 in Law Review Articles | Permalink | Comments (0) | TrackBack