Tuesday, February 6, 2007
The SEC is conducting an investigation into whether Wall St. banks are providing inside information about large stock trades to favored clients, like hedge funds, reports the New York Times in a front-page story. Banks named in the probe are Merrill Lynch, Morgan Stanley, UBS, and Deutsche Banks. "Mutual fund traders have long complained that their big trades may be being front-run by market participants with inside information about their trades, and they believe the price on those trades suffers as a result,” said Lori Richards, the director of the Office of Compliance Inspections and Examinations at the S.E.C. “We are looking into these allegations in a systemic way. It is fact-finding and too early for any conclusions.” See NY Times, S.E.C. Is Looking at Stock Trading .
Blackstone raised its all-cash bid for Equity Office Property Trust to $55.50 per share, for a total consideration of $39 billion, in response to Vornado's improving its cash/shares offer. EOP said that Vornado's offer presented a danger that the public shareholders would be locked in as minority holders. The EOP shareholders vote today on the Blackstone deal. See WSJ, Blackstone Raises Equity Office Bid. See also NY Times, Blackstone Raises Its Bid for Equity Office.
Monday, February 5, 2007
NASD announced today that it has fined four Boston-based Fidelity broker-dealers a total of $3.75 million for improperly maintaining NASD registrations for 1,100 individuals, failing to assign registered supervisors to 1,000 individuals, failing to retain the email of 1,900 registered individuals, and other electronic recordkeeping failures. NASD further found that, in connection with the receipt of gifts and entertainment, Fidelity Distributors Corporation (FDC), the principal underwriter of the Fidelity family of mutual funds, failed to supervise certain registered individuals for compliance with Fidelity's ethics and conflicts of interest policies applicable to all Fidelity employees. For further details, see NASD Fines Four Fidelity-Affiliated Broker-Dealers $3.75 Million for Registration, Supervision and Email Retention Violations.
In an informative interview, Andrew Donohue, head of SEC's Investment Management Division, identifies the issues involving mutual funds and ETFs that the agency is focusing on, including revenue-sharing arrangements, disclosure issues, the market-timing rule, the independent-chair rule and guidance to fund boards on what their responsibilities are. See WSJ, In the Top Cop's Office in Washington, .The Search for More Fund Skeletons
Wall St. worries about a "melt-up" -- a dramatic increase in stock prices -- ahead. Will individual investors get in over their heads? Will private equity funds take all available shares in sight? Will inflation return? Read about their worries at WSJ, Rising Stocks Kindle Worries Of a 'Melt-Up'.
Harley-Davidson has record earnings and a high stock price (too high, say many analysts), so why did seven executive officers (including the CEO, Chair, general counsel, and chief accountant) sell a record number of shares last fall, wonders the WSJ, in Living High on the Hog.
Herbalife announced a $2.7 billion bid from its chairman and private equity firm Whitney. Whitney took the company private in 2002 and then went public again in 2004. The bid is about a 15% premium over market price, which plummeted in January because of poor sales. See WSJ, Herbalife Receives a $2.7 Billion Buyout Offer.
Triad Hospitals is expected to announce a deal to sell the company to a private equity firm for $4.4 billion. Hospitals are a new favorite of private equity firms, says WSJ, Triad Nears Private-Equity Pact.
In addition, it is expect that Simon Property (the largest REIT) and Fallon Capital Management will make a $1.56 billion bid for Mills Corp., another REIT, that currently has a $1.35 billion agreement with Brookfield. WSJ says this deal reflects trends for 2007: private equity firms ntaking a controlling stake and teaming up with other partners, and no hesitation about busting up other deals. See WSJ, Simon Sets Rival Offer for Mills. For the NY Times take on this, see New Suitor Ignites Battle for Ailing Mills Corp.
Equity Office Property Trust stays with Blackstone's all-cash bid, rejecting a somewhat higher bid from Vornado that contains a substantial non-cash component. Vornado says it may revise bid to accelerate the payment of the cash portion. The shareholder vote on the Blackstone deal, originally scheduled for today, is scheduled for Wednesday. For more details, see WSJ, Vornado Offers Equity Office A Quicker Payoff. The NY Times also covers the latest developments in what will be the largest LBO; see Vornado Sweetens Its Bid for an Office Landlord .
Sunday, February 4, 2007
In the bankruptcy proceeding arising out of Michael Berger's Ponzi scheme, the bankruptcy trustee of the fund recovered as fraudulent transfers margin payments deposited into the Fund's account at Bear Stearns. Because Bear Stearns had the power to use the moneys to protect its financial interests, it was not simply a "conduit" of the funds but an "initial transferee from whom the trustee could recover the funds. In addition, Bear Stearns was not successful in arguing that it took the money in good faith, because it was on inquiry notice of the fraud for over a year and took no steps in investigate. Gredd v. Bear Stearns Corp., 2007 WL 60843 (Bankr. S.D.N.Y. 1/09/07).
Answer S. Ahmed (Texas A&M) and Richard A. Schneible's (Texas Christian) paper on The Impact of Regulation Fair Disclosure on Investors' Prior Information Quality - Evidence from an Analysis of Changes in Trading Volume and Stock Price Reactions To Earnings Announcements is now posted on SSRN. Here is the abstract:
We document that Regulation Fair Disclosure has reduced differences in information quality between investors prior to quarterly earnings announcements consistent with the intent of the regulation. This reduction is driven by small firms and high technology firms, rather than the large firms targeted by the SEC, which suggests that selective disclosure among large firms may have been much more limited than what was presumed by proponents of FD. In addition, we document that FD has decreased the average information quality of investors in small and high technology firms in the period prior to an earnings announcement while having no lasting effect on other firms. Taken together these two results suggest that, for small and high technology firms, FD succeeded in eliminating selective disclosure but also lowered the average quality of information available about these firms.