Securities Law Prof Blog

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

Friday, January 25, 2008

South Texas Seeks Faculty Visitors

South Texas College of Law seeks one or more visitors for either or both semesters of the 2008-09 academic year.  Priority will be given to applicants interested in teaching torts, evidence, and business courses (e.g., corporations, agency and partnership, securities regulation, corporate finance, and mergers and acquisitions).  Applicants should submit a current c.v. and indicate a preference for one or both semesters and a desired course package.

Tim Zinnecker
(Chair -- Faculty Appointments Committee)

January 25, 2008 in Professional Announcements | Permalink | Comments (0) | TrackBack (0)

SEC Publishes Small Entity Compliance Guide

The SEC published on its website a "small entity compliance guide" prepared by SEC staff to summarize and explain the changeover to the SEC's new Smaller Reporting Company System by Small Business Issuers and Non-Accelerated Filer Companies.

January 25, 2008 in SEC Action | Permalink | Comments (0) | TrackBack (0)

New York's Efforts to Bail Out Bond Insurers Hits a Snag

As New York State Insurance Superintendent Eric Dinallo explores ways to bail out the bond insurers that guarantee municipal bonds and other debt, he is encountering resistance from Wall St.  Part of the problem is that the firms may not have the money to invest; another may be their disinclination to work with Mr. Dinallo, who was one of Eliot Spitzer's chief attorneys in his investigations into Wall St. firms a few years ago.  WSJ, Bond-Insurer Rescue Effort Faces Wall Street Skepticism.

January 25, 2008 in News Stories | Permalink | Comments (0) | TrackBack (0)

SEC's Atkins on Stoneridge

SEC Commissioner Paul S. Atkins says Stoneridge, far from being an anti-investor decision, upholds the rule of law and protects investors from the greedy  securities plaintiffs' bar, in a commentary in today's WSJ, Stoneridge and the Rule of Law.

January 25, 2008 in News Stories | Permalink | Comments (0) | TrackBack (0)

SWFs and Political Acceptance

Politicians, academics and the general public will at some time perhaps debate the effect sovereign wealth funds are likely to have both on the companies they are investing in and more generally the U.S. economy, but to date all have been quiet as the SWFs have provided the funds that big financial institutions like Merrill Lynch and Citigroup need to repair their bad business decisions.  The Wall St. Journal addresses some of the longterm implications and the well-funded lobbying campaign that, since the 2006 Dubai Port's failed attempt to invest in a U.S. port operator, has worked to make foreign investments acceptable.  WSJ, Lobbyists Smoothed the Way For a Spate of Foreign Deals.

January 25, 2008 in News Stories | Permalink | Comments (0) | TrackBack (0)

Thursday, January 24, 2008

Corporation Finance's Plans for 2008

John W. White, Director, Division of Corporation Finance,SEC, spoke on Corporation Finance in 2008 — A Focus on Financial Reporting, at 35th Annual Securities Regulation Institute, San Diego, California, on January 23, 2008.  In his remarks, he identified:

two themes that are driving our activities this year, particularly possible rulemaking plans. The biggest area of focus for us in 2008 is financial reporting, including reviewing the Commission's new Advisory Committee on Improvements to Financial Reporting (CIFiR), which is actually planning to vote on a number of recommendations to be included in a progress report in a few weeks. Within financial reporting (very broadly defined), I am including use of interactive data, IFRS for U.S. issuers, various proposed recommendations of the CIFiR (including on materiality and restatements and use of websites for disseminating financial information), SOX 404 and even oil and gas disclosures. The other leading area of focus for this year in Corporation Finance is international matters, which I discussed at some length last week in London, in remarks titled "Corporation Finance in 2008 — International Initiatives."

January 24, 2008 in SEC Action | Permalink | Comments (0) | TrackBack (0)

SEC Settles Pump & Dump Scheme Involving Aimsi Technologies

The SEC settled an enforcement action alleging a deliberate "pump and dump" scheme to defraud investors in the stock of Aimsi Technologies, against Defendants Aimsi Technologies, Inc. and Winfred Fields.  The SEC filed its action on an emergency basis on May 16, 2005, alleging that Aimsi, Fields and the other defendants acquired a substantial stake in the shares of Aimsi, orchestrated a fraudulent promotional campaign to drive up the price and trading volume of Aimsi's stock, and then sold their shares at a substantial profit to the investing public after their plan succeeded. The Complaint alleges that before the Commission suspended trading in Aimsi's stock on Dec. 15, 2004, the defendants earned illicit trading profits of at least $3.1 million.

On January 15, 2008, the federal district court for the Southern District of New York entered final judgments on consent against Aimsi and Fields.

January 24, 2008 in SEC Action | Permalink | Comments (0) | TrackBack (0)

Corporations Drop Stock Buybacks

Why aren't there any stock repurchase programs when investors could really use them?  Corporations frequently buy their own shares in the open market as a way of maintaining the stock price, yet buybacks are down.  A Wall St. Journal article suggests several reasons: corporations used up their available cash buying shares at more expensive prices, corporations are reluctant to spend cash in these times of financial crisis, buybacks are a sign of confidence in the market, which is lacking these days, there is no longer the need for defensive buybacks.  WSJ, Where Have Buybacks Gone?

January 24, 2008 in News Stories | Permalink | Comments (0) | TrackBack (0)

Possible Bailout of Bond Insurers is Discussed

New York state insurance regulators are trying to solve one of Wall St.'s biggest concerns -- the solvency of bond insurers Ambac Financial Group and MBIA, Inc.   Bond insurers guarantee the principal and interest payments of municipal bonds.  Both have attempted to raise additional capital as higher defaults put their ratings at risk.  The state insurance regulator arranged a meeting to discuss a Wall St. bailout.  WSJ, New York Seeks Bailout of Bond Insurers.

January 24, 2008 in News Stories | Permalink | Comments (0) | TrackBack (0)

Societe General Reports Futures Hedging Losses

Societe General, France's second largest bank, announced a $7.16 billion write-down due to "massive fraudulent directional positions" by a single trader in charge of futures hedging on European equity market indices.  The unnamed trader concealed losses through an elaborate scheme of fictitious transactions.  The loss is the largest from a rogue trader.  Both the trader and his supervisor were fired.  WSJ, Societe Generale Hit By Fraud, Write-Downs.

January 24, 2008 in News Stories | Permalink | Comments (0) | TrackBack (1)

Wednesday, January 23, 2008

SEC Is Looking into Stock Sales by Sallie Mae Officers and Directors

In addition to its financial difficulties, Sallie Mae disclosed that the SEC has sought information about the company's disclosures and actions last December when some of the company's officers and directors sold their Sallie Mae shares.  WSJ, SLM Swings to Quarterly Loss, Says SEC Is Looking at Disclosures.

January 23, 2008 in News Stories | Permalink | Comments (0) | TrackBack (0)

SEC Settles Backdating Charges Against Former Monster CEO

The SEC announced a settled enforcement action against Andrew J. McKelvey, the former Chief Executive Officer of Monster Worldwide, Inc., for his participation in a multi-year scheme to secretly backdate stock options granted to Monster officers, directors and employees.  Although McKelvey did not receive backdated options, he benefited from the scheme by granting backdated options to four individuals he personally employed, including three pilots and a mechanic.  Under the settlement, McKelvey will pay $275,989.72 in disgorgement and prejudgment interest, will be barred from serving as an officer or director of a public company, and will be enjoined from violations of the anti-fraud, reporting and other provisions of the federal securities laws. McKelvey agreed to the settlement without admitting or denying the allegations in the complaint.

The SEC alleged that, beginning in 1997, McKelvey backdated stock option grants to coincide with the dates of low closing prices for the Company's common stock, resulting in grants of in-the-money options to numerous individuals. McKelvey understood that backdating options to coincide with low closing prices for Monster stock without recognizing a compensation expense was contrary to accounting rules and contrary to representations in Monster's SEC filings.  McKelvey also caused Monster to misrepresent in its periodic filings and proxy statements filed with the Commission that all stock options were granted at the fair market value of the stock on the date of the award and caused Monster to overstate its aggregate pretax operating income by approximately $339.5 million, for fiscal years 1997 through 2005.

January 23, 2008 in SEC Action | Permalink | Comments (0) | TrackBack (0)

Bayou Co-Founder Sentenced for Fraud

James G. Marquez, co-founder of several Bayou Management hedge funds, was sentenced to 51 months in prison and ordered to pay $6.26 million in restitution for scheming to defraud investors into investing in the funds by misrepresenting their profitability.  Samuel Israel III, former Bayou CEO, and Daniel Marino, former Bayou CFO, previously pled guilty.  NYTimes, Hedge Fund Founder Sentenced for Fraud.

January 23, 2008 in News Stories | Permalink | Comments (0) | TrackBack (1)

Reactions to Denial of Cert in Enron

Reactions to the Supreme Court's denial of cert in the Enron appeal:

"Our thinking was, if there was room for private actions, we'd be in a situation of a litigation free-for-all, that there'd really be no limiting principle here,"  said Robin Conrad, an executive at the U.S. Chamber of Commerce.

"From a public policy standpoint, it's an outrageous result," said former SEC Commissioner Harvey J. Goldschmid.  You can't turn down Enron without understanding the signal you're sending." WPost, Court Declines Enron Investors' Appeal.  For other reactions, see NYTimes, Supreme Court Won’t Hear Complaint by Enron Investors; WSJ, Justices Rebuff Enron Holders.

January 23, 2008 in News Stories | Permalink | Comments (0) | TrackBack (0)

Tuesday, January 22, 2008

Wachovia's Directors Asked About Risk Policies

CtW Investment Group, an affiliate of a coalition of labor unions called "Change to Win," sent letters to the four directors who are members of Wachovia's Risk Committee, asking them to describe what they did to protect shareholders from excess exposure to mortgage-related risk.  All four directors are up for re-election this spring.  Inv News, CtW challenges Wachovia directors.  Wachovia reported that its 4th quarter net income dropped 98% (3 cents per share compared to $1.20 last year) as it increased its loan-loss provision to $1.5 billion.  WSJ, Wachovia's Net Plummets As Loan-Loss Provision Rises.

January 22, 2008 in News Stories | Permalink | Comments (0) | TrackBack (3)

SEC Settles Insider Trading Charges Against Former OrthoClear Director

The SEC filed insider trading charges against a former director of San Francisco-based company OrthoClear Holdings, Inc., alleging that he netted nearly $1.5 million by trading on confidential company information.  According to the SEC, Saiyed Atiq Raza was informed in confidence by OrthoClear's CEO that the company had reached a settlement of long-running litigation that would significantly benefit its primary competitor in the transparent teeth-aligner market, Santa Clara-based Align Technology. Rather than maintain the confidentiality of the information, Raza used it for his own benefit by buying Align securities before the settlement agreement became public.

Without admitting or denying the allegations, Saiyed Atiq Raza agreed to a settlement under which he will pay nearly $3 million in disgorgement and penalties, be barred from serving as an officer or director of a public company for five years and be permanently enjoined from future violations of the federal securities laws.

January 22, 2008 in SEC Action | Permalink | Comments (0) | TrackBack (3)

Supreme Court Denies Cert in Enron Case

For those who had some hope that the Supreme Court's Stoneridge opinion would allow an opportunity to distinguish Enron because the defendants in the latter case are investment bankers and the transactions thus were not the "ordinary" commercial transactions involved in Stoneridge, read it and weep:  the Court denied cert this morning in Regents of University of California v. Merrill Lynch (Docket No. 06-1341).  This was the Fifth Circuit opinion that held that the investment bankers who advised Enron on various transactions could not be held liable based on "scheme liability."

January 22, 2008 in Judicial Opinions | Permalink | Comments (0) | TrackBack (1)

Lawsuits Follow Market Crash

The New York Times provides a catalogue of the various types of lawsuits, brought by both regulators and private parties, resulting from the collapse of the mortgage-related securities markets.  The common theme is whether lenders and investment banks provided sufficient information to borrowers and investors about the risks posed by subprime loans and the securities backed by them.  A quote from Professor Tamar Frankel sums it up:  “What strikes me here is that this a tainted system from A to Z.  Everybody blames everybody else. If you look at what is being said, there isn’t one who doesn’t blame another and there is half-truth in everything.”  NYTimes, If Everyone’s Finger-Pointing, Who’s to Blame?

January 22, 2008 in News Stories | Permalink | Comments (0) | TrackBack (0)

SEC's Nazareth Leaving Jan. 31

SEC Commissioner Annette Nazareth, the lone Democrat, is leaving Jan. 31 to pursue other professional opportunities in the private sector.  Ms. Nazareth has been at the SEC first as staff attorney then as Commissioner for nearly a decade.  She was the only dissenter in the SEC's amendment of Rule 14a-8 to restrict shareholder access to the proxy ballot for proposals related to the board election process.  Two candidates have been proposed for the two Democratic vacancies, Elisse  B. Walter (currently at FINRA) and Luis A. Aguilar (a corporate attorney in Atlanta).  Those three remaining Republicans could use some help straightening out the mess.  WPost, Lone SEC Democrat To Leave Jan. 31.

January 22, 2008 in News Stories | Permalink | Comments (0) | TrackBack (0)

Monday, January 21, 2008

New York's Commission to Modernize Financial Services Regulation

New York Governor Eliot Spitzer has joined the chorus advocating "principles-based regulation" as a cure for what ails the financial services industry.  On Jan. 18, the Governor hosted the first meeting of the Commission to Modernize the Regulation of Financial Services, where a proposal to institute principles-based regulation was discussed.  According to the press release:

New York’s financial services market has been burdened by current regulations – a litany of detailed rules that are ineffective at achieving consumer protection. The United Kingdom and other international markets are moving to principle-based regulation, which focuses on broad guidelines. Some companies and consumers are concerned this may mean diminished compliance with specific rules, but the new principles-guided approach preserves relevant rules, while asking regulators and companies to focus on achieving desired outcomes. The result will be healthy markets and strong consumer protection without unneeded burdens.

The Commission will also consider a single state regulator for all financial services; instituting a risk-based approach to regulation; and eliminating out-of-date rules that are unnecessarily burdensome.

According to Governor Spitzer, “Modernizing regulation of financial services is first and foremost about keeping New York the financial capital of the world.”

January 21, 2008 in News Stories | Permalink | Comments (0) | TrackBack (1)