November 16, 2009
SEC Proposes Amendments to "Dark Pools" of LiquidityThe SEC is proposing to amend the regulatory requirements of the Securities Exchange Act of 1934 (“Exchange Act”) that apply to non-public trading interest in National Market System (“NMS”) stocks, including so-called “dark pools” of liquidity. First, it is proposing to amend the definition of “bid” or “offer” in Exchange Act quoting requirements to apply expressly to actionable indications of interest (“IOIs”) privately transmitted by dark pools and other trading venues to selected market participants. The proposed definition would exclude, however, IOIs for large sizes that are transmitted in the context of a targeted size discovery mechanism. Second, the Commission is proposing amendments to the display obligations of alternative trading systems (“ATSs”) in Regulation ATS under the Exchange Act, including a substantial lowering of the trading volume threshold in Regulation ATS that triggers public display obligations for ATSs. Third, the Commission is proposing to amend the joint-industry plans for publicly disseminating consolidated trade data to require real-time disclosure of the identity of dark pools and other ATSs on the reports of their executed trades. The proposals are intended to promote the Exchange Act goals of transparency, fairness, and efficiency. Comments are due 90 days after publication in the Federal Register.
Bancinsurance Corp. Settles SEC Accounting ChargesThe SEC filed a settled civil injunctive action against Ohio insurance company Bancinsurance Corporation ("Bancinsurance" or the "Company"), and its chief executive officer, John S. Sokol ("Sokol"), charging them with securities fraud and other violations of the federal securities laws. The Commission's complaint alleges that Bancinsurance failed to account properly for more than $2 million of reinsurance claims, and that Sokol-Bancinsurance's president at the time-failed to ensure that the Company's principal financial officer or its external auditors were informed of the claims. As a result, the Company's financial condition in its Form 10-K for fiscal year 2003 and its Form 10-Q for the first quarter of fiscal year 2004 was materially misstated. Sokol agreed to pay a $60,000 civil penalty, and both Bancinsurance and Sokol agreed to be permanently enjoined from violating the antifraud and other provisions of the federal securities laws.
SEC Brings Charges Alleging "Green" Ponzi Scheme
The SEC charged four individuals and two companies involved in perpetrating a $30 million Ponzi scheme in which they persuaded more than 300 investors nationwide to participate in purported environmentally-friendly investment opportunities. The SEC alleges that Wayde and Donna McKelvy, who were previously married and living in the Denver area, particularly targeted elderly investors or those approaching retirement age to finance such "green" initiatives of Pennsylvania-based Mantria Corporation as a supposed "carbon negative" housing community in rural Tennessee and a "biochar" charcoal substitute made from organic waste. The McKelvys promoted Mantria investment opportunities through their Denver-based company Speed of Wealth LLC. With the help of two other promoters who are Mantria executives — Troy Wragg and Amanda Knorr of Philadelphia — they convinced investors attending seminars or participating in Internet "webinars" to liquidate their traditional investments such as retirement plans and home equity to instead invest in Mantria.
The SEC alleges that the "green" representations were laced with bogus claims, and investors were falsely promised enormous returns on their investments ranging from 17 percent to "hundreds of percent" annually. In fact, Mantria's environmental initiatives have not generated any significant cash, and any returns paid to investors have been funded almost exclusively from other investors' contributions.
The SEC's complaint, filed in federal court in Denver, charges Mantria and Speed of Wealth as well as the McKelvys, Wragg and Knorr, and seeks an emergency court order to freeze their assets. The SEC's complaint charges each of the defendants with violating the antifraud and offering registration provisions of the securities laws. The SEC also charged all of the defendants except for Mantria with violating broker-dealer registration requirements. The SEC seeks injunctions, disgorgement, and financial penalties from the defendants.
Report Faults Fed's Handling of AIG BailoutIt is reported this evening that the New York Fed (under Timothy Geithner), in its rush to bail out AIG last November, "refused to use its considerable leverage" to negotiate and obtain concessions from AIG's counter-parties. As a result, AIG's trading partners (including Goldman) got paid in full with taxpayer dollars. The report, prepared by Neil Barofsky, the special inspector general for TARP, is due out tomorrow. NYTimes, Report on Inquiry Faults Handling of A.I.G. Bailout; WSJ, Audit Is Critical of N.Y. Fed in AIG Bailout.
November 15, 2009
Coffee on Litigation Governance
Litigation Governance: Taking Accountability Seriously, by John C. Coffee Jr., Columbia Law School; European Corporate Governance Institute (ECGI); American Academy of Arts & Sciences, was recently posted on SSRN. Here is the abstract:
Both Europe and the United States are rethinking their approach to aggregate litigation. In the United States, class actions have long been organized around an entrepreneurial model that uses economic incentives to align the interest of the class attorney with those of the class. But increasingly, potential class members are preferring exit to voice, suggesting that the advantages of the U.S. model may have been overstated. In contrast, Europe has long resisted the U.S.’s entrepreneurial model, and the contemporary debate in Europe centers on whether certain elements of the U.S. model - namely, opt-out class actions, contingent fees, and the “American rule” on fee shifting - must be adopted in order to assure access to justice. Because legal transplants rarely take, this Essay offers an alternative “non-entrepreneurial model” for aggregate litigation that is consistent with European traditions. Relying less on economic incentives, it seeks to design a representative plaintiff for the class action who would function as a true “gatekeeper,” pledging its reputational capital to assure class members of its loyal performance. Effectively, this model marries aspects of U.S. “public interest” litigation with existing European class action practice. Examining the differences between U.S. and European practice, this Essay argues none of these differences are dispositively prohibitive and that functional substitutes, including an opt-in class action and third party funding, could be engineered so as to yield roughly comparable results. Although the two systems might perform similarly in terms of compensation, the ultimate question, it argues, is the degree to which a jurisdiction wishes to authorize and arm a private attorney general to pursue deterrence for profit.
Rose on Multi-Enforcer Approach to Securities Fraud Deterrence
The Peril and Promise of a Multi-Enforcer Approach to Securities Fraud Deterrence: A Framework for Analysis, by Amanda M. Rose, Vanderbilt University Law School, was recently posted on SSRN. Here is the abstract:
Participants in the United States’ national securities markets face potential fraud liability at the hands of the SEC, class action plaintiffs, and state regulators. Does this “multi-enforcer” approach to securities fraud deterrence make sense? How does one even go about answering that? This Article tackles the second question, filling a current void in the securities fraud literature by elucidating the circumstances that must prevail in order for a multi-enforcer approach to serve the cause of optimal deterrence. It thus situates debates over the preemption of state securities fraud enforcement authority and the desirability of private Rule 10b-5 enforcement within a framework of rational inquiry, and clarifies the empirical questions that must ultimately drive their resolution.
Black on Hewlett-Packard
The Story of Hewlett-Packard, by Barbara Black, University of Cincinnati - College of Law, was recently posted on SSRN. Here is the abstract:
With the development of the modern corporation, corporate boards have been the locus of corporate authority, and particularly since the 1980s, boards and their performance have been under intense scrutiny. Nevertheless, corporate law has not developed a consistent theory for what boards are supposed to do; instead, it sends mixed messages about the functions and expectations of boards and the appropriate people to sit on them. The HP saga illustrates some of the dilemmas faced by directors confronted by these competing pressures.
Gross on Grounds to Challenge FINRA Arbitrators
Grounds to Challenge FINRA Arbitrators, by Jill Gross, Pace Law School, was recently posted on SSRN. Here is the abstract:
This short article describes the grounds and processes parties can invoke to challenge the neutrality of arbitrators appointed to decide their disputes filed with FINRA Dispute Resolution, either pre-hearing or post-award.