Securities Law Prof Blog

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

Saturday, February 24, 2007

LSE-TSE Alliance

the London Stock Exchange and Tokyo Stock Exchange agreed to facilitate market access and creat a 24-hour trading market.  This is the latest in a number of trans-border alliances between exchanges.  TSE previously entered an alliance with the NYSE; LSE fought off attempts to be acquired by Nasdaq.  See NY Times, London and Tokyo Exchanges to Collaborate

February 24, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

More on Backdating at Take Two

Take Two announced that 5 independent directors received backdated stock options and have agreed to repay the corporation.  See NYTimes, 5 Will Repay Take-Two Over Options.

February 24, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

Court Postpones Vote on Caremark-CVS Merger

The Delaware Chancery Court told Caremark that it must provide its shareholders information about their right to vote no on the Caremark-CVS merger and seek appraisal rights to determine the value of their shares.   The shareholder vote was scheduled for March 9.  See Judge Refuses to Halt Deal
Between Caremark-CVS.

February 24, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

Criminal Investigation into Backdating at KB Home

KB Home announced that a criminal investigation into backdating stock options is ongoing and it is not the target.  Last November the company fired CEO Bruce Karatz and top human resources officer Gary Ray after an internal investigation showed a number of instances of backdating from 1998.  See NY Times, New Inquiry on Options at KB Home and WSJ, Former KB Officials Face U.S. Backdating Probe.

February 24, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

Bayou Hedge Fund Investors Can Sue on Fraudulent Conveyance Theory

A bankruptcy judge in New York held that investors who lost money in the failed hedge fund Bayou Management could seek to recoup $140 million withdrawn from the fund before its collapse in 2005, on the ground that the withdrawals were fraudulent conveyances intended to defraud creditors.  See WSJ, Bayou Investors Who Lost Money in Collapse Can Sue Other Investors.

February 24, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

Latest on Former Comverse CEO

What's Kobi Alexander, former CEO at Comverse, up to, after fleeing the U.S. to avoid criminal charges on backdating stock options?  He's still in Namibia and has started a company dealing in construction, tourism, and agriculture.  See NY Times, U.S. Fugitive Starts Over in Namibia.

February 24, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

Record High for Margin Debt

Margin debt at brokerage firms reached $285.6 billion at end of last month, topping the previous high of 278.5 billion in March 2000.  Does this reflect unhealthy speculation or healthy investor confidence?  See NY Times, A Mountain of Margin Debt May Not Be Cause for Concern.

February 24, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

KKR & Co. Plans to Acquire TXU

KKR & Co. (remember Henry Kravis?) is reportedly finalizing a deal to acquire the controversial Texas utility, TXU Corp.,  The New York Times says it will be for $45 billion, which would make it largest LBO to date; the Wall St. Journal says it will be for $32 billion.  Environmental groups criticize TXU's plans to build eleven coal-fired power plants in Texas.   KKR is partnering with Texas Pacific Group.  See NY Times, At $45 Billion, New Contender for Top Buyout and WSJ, Buyout Firms Seek Utility TXU For $32 Billion.

February 24, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

Friday, February 23, 2007

SEC Corporate Finance Status Report

Speech by SEC Staff: The Promise of Transparency — Corporation Finance in 2007 by John W. White
Director, Division of Corporation Finance U.S. Securities and Exchange Commission, 29th Annual Conference on Securities Regulation and Business Law Dallas, Texas February 23, 2007

In this speech, Mr. White outlines the initiatives of Corporation Finance, including: foreign private issuer deregistration (working hard on proposed rule because of June 30 deadline when some foreign private issuers will have to file 404 reports); guidance to management on required assessments under SOX section 404; e-proxy; executive compensation disclosure (waiting, like everyone else, to see the results of the new rules); process access (the "elephant in the room" after the 2d Cir. AIG opinion); international financial standards; interactive data; PIPEs; Restatementsand Item 4.02 of Form 8_K; and Small Business Capital Raising and Private Offering Reform  (the "long-lost uncle" in the course of being found again).  Well-worth reading for anyone wanting to keep up-to-date on the staff's thinking.

February 23, 2007 in SEC Action | Permalink | Comments (1) | TrackBack (0)

Backdating Options Investigations -- No End in Sight?

There are many ongoing investigations about options backdating that seem to drag on.  A New York Times focuses on the $7 million settlement that Brocade Communications agreed to pay last July, which has not yet been approved by the SEC.  Does this signal disagreement among the Commissioners?  Some say the SEC is just taking its time to understand the situation better.  NYTimes, The Slow Pace of Justice on Options Backdating.

February 23, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

More International Alliances Between Stock Exchanges

Every day the news reports cross-border alliances between stock exchanges.  The Deutsche Borse is acquiring 5% interest in the Bombay Stock Exchange, the NYSE is acquiring 5% in the National Stock Exchange in India, and the Tokyo Stock Exchange is exploring an alliance with the London Exchange after making an alliance with the NYSE.  Are these real partnerships or just for show?  See NY Times, Stock Exchanges in a Rush to Forge Links With One Another and WSJ, London, Tokyo Stock Exchanges To Develop Jointly Traded Products.

February 23, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

No News on Chrysler Sale

Don't expect any announcements about a sale of Chrysler for weeks or months, said Chrysler CEO Thomas LaSorda in an e-mail message to employees, telling them to stay focused on revamping efforts.  Meanwhile, morale is low at DaimlerChrysler, as cost-cutting measures go into effect.  See NYTimes, Watchwords at Chrysler Are Hurry Up and Wait. Meanwhile, Daimler Chrysler plans to offer financial information about Chrysler selectively and not hold a formal auction open to all bidders, says WSJ, Chrysler's Big Secrets To Be Told With Care.

February 23, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

Bankruptcy Decision Has Prime Brokers Worried

The ramifications of last month's bankruptcy court decision, requiring Bear Stearns to turn over to the bankruptcy estate of a failed hedge fund client $160 million, are explored in NY Times, The Bankruptcy Development That Has Wall St. Worried.  The court found that Bear Stearns failed to adequately investigate red flags that would have disclosed the fraud.  Prime brokerage, providing services to hedge funds, is lucrative business on Wall St. these days.

February 23, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

New Report on Hedge Funds States the Obvious

Months of study and what does Treasury Secretary Paulson's Working Group on Financial Markets recommend about hedge funds?  Investors shouldn't take risks they can't tolerate, and hedge funds should provide better disclosure.  And, oh yes, there is no need for federal regulation.  See NYTimes, Officials Reject More Oversight of Hedge Funds.

February 23, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

Thursday, February 22, 2007

Market-Timing Judgment Against Deustche Bank Securities Broker


The SEC announced  that  on  Jan.  26,  2007,  the  U.S. District Court for the Southern District of New York entered  a final judgment  against  Michael  G.  Velasco.  Velasco  was  a   registered representative at Deutsche Bank Securities, Inc., a registered broker-dealer and investment adviser. In the complaint in  this  action,  the Commission alleges that Velasco defrauded mutual funds by engaging  in deceptive practices to circumvent mutual funds'  restrictions  on  his market  timing  customers.  The  final  judgment  permanently  enjoins Velasco from violating Section 17(a) of the Securities  Act  of  1933, Section 10(b) of the Securities Exchange Act of 1934, and Rule  10b-5.  In addition, the final judgment directs Velasco to pay disgorgement of    $60,824.26 plus prejudgment interest of $8,063.17, and directs him  to pay a civil penalty of $60,824.26. Velasco consented to the  entry  of the final judgment without admitting or denying the allegations in the complaint. The Commission also announced today that  it  instituted  a settled administrative  proceeding  against  Velasco.  The  Commission entered an order based on the entry of the injunction barring  Velasco from association with any broker or dealer or investment adviser, with the right to reapply  for  association  after  2  years,  pursuant  to Section 15(b) of the Exchange Act and Section 203(f) of the Investment Advisers Act of 1940. Velasco consented to  the  entry  of  the  order without admitting or denying its findings except he admitted the entry of the injunction.

February 22, 2007 in SEC Action | Permalink | Comments (0) | TrackBack (0)

NASD Investor Education Foundation Expands Military Financial Education Program

The NASD Investor Education Foundation will expand the scope of its Military Financial Education Campaign this year, adding two new programs aimed at specific populations within the military community - military spouses and wounded and severely injured servicemembers. An e-learning financial simulation game is also in development to teach the military community about the importance of managing their finances and financial planning. The NASD Foundation has committed $3.8 million to fund the military program's second year.

Formally launched in February 2006 with the goal of providing servicemembers and their families with unbiased financial education information and tools, the program offers dozens of educational forums at military installations in the U.S. and abroad, continuing education for on-base Personal Financial Managers (PFMs), a financial counseling fellowship program for military spouses, a comprehensive Web focuses on the unique financial needs of the military community and a targeted public education campaign to raise awareness of available programs and resources.

"The NASD Foundation's Military Financial Education Campaign has succeeded in meeting a critical need, reaching thousands of military servicemembers and their families with the tools and resources designed to meet the unique financial education needs of military families," said NASD Foundation Chairman Mary Schapiro, who also serves as NASD's Chairman and CEO. "As we move into 2007, our core goal remains the same: provide military families with the information they need to save and invest with confidence."

February 22, 2007 in Other Regulatory Action | Permalink | Comments (0) | TrackBack (0)

NASD Investor Education Foundation Announces New Grants and Guidelines

NASD's Investor Education Foundation announced its guidelines for its next round of grants to further investor education and also announced recent recipients of grants.  Behavioral finance, the retirement income security of older Americans and new marketing and distribution channels for investor education will be the main areas of focus for the NASD Investor Education Foundation's 2007 General Grant Program.

To provide greater flexibility for applicants, the 2007 General Grant Program will have two cycles. In the first cycle, applicants submitting proposals postmarked on or before Monday, February 26, will be notified of grant decisions in July. For the second cycle, proposals must be submitted on or before Friday, August 10, and notifications will be made in late December. The NASD Foundation's grant programs are open to non-profit organizations, including public and private colleges and universities.

"Most of us assume that individuals consider all available information when making decisions, especially financial decisions," said NASD Foundation Chairman Mary L. Schapiro, who also serves as NASD's Chairman and CEO. "But there's a growing body of evidence that that's not always true - that social, emotional and other influences lead people to make unwise economic and investment decisions that affect their financial security. We want to pursue research in the area of 'behavioral finance' so we can better understand how those biases affect financial decision-making, and develop investor education materials and strategies that can overcome those biases."

The NASD Foundation's 2007 grant program priorities also recognize the increasing importance of educating older Americans about managing their finances in retirement, given that the retirement population will swell to an unprecedented 70 million or more individuals, many of whom will have to manage assets accumulated in 401(k)s and other defined contribution plans. Another priority area focuses on new and effective ways to market and distribute investor education so that large numbers of Americans receive the help they need.

Among the grants awarded was was Guide to Dispute Resolution for the Small Investor - $153,725 to Pace University Law School in White Plains, NY, to develop and distribute an educational guide to help small, individual investors understand their legal rights and responsibilities in order to avoid disputes, or seek resolution through arbitration or mediation in the event of a dispute.  (In the interests of full disclosure, this blogger was formerly associated with Pace, but had no involvement in the grant process.)

February 22, 2007 in Other Regulatory Action | Permalink | Comments (0) | TrackBack (0)

Paulson's Group Issues Report on Hedge Funds

The President's Working Group on Financial Markets (spearheaded by Treasury Secretary Paulson) released a report calling for a consistent and uniform approach to the regulation of hedge funds.  It identifies a number of "best practices," but does not set forth any recommendations for new regulation.  See WSJ, Paulson-Led Group Suggests No New Hedge Fund Regulation.

February 22, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

Whole Foods to Acquire Wild Oats

Whole Foods announced a merger with its struggling competitor, Wild Oats, at $18.50 per share, a 18% premium over Wild Oats' closing price yesterday.  Competition for affluent grocery shoppers, willing to pay more for organic foods and fresh produce, is heating up as the big-name chains have entered the market.  See WSJ, How Whole Foods' Wild Oats Deal Is Unhealthy for Rivals and NYTimes, Whole Foods Makes Offer for a Smaller Rival .

February 22, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)


Speculation continues to grow that GM might acquire Chrysler, after DaimlerChyrsler's announcement that all options were on the table.  Analysts, however, think the acquisition would be "illogical."  See WSJ, What Chrysler Could Add to GM.

February 22, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)