December 18, 2009
SEC and Inter-Dealer Broker Settle Fraud Charges
The SEC and the U.S. subsidiary of the world's largest inter-dealer broker, U.K.-based ICAP plc,settled fraud charges that alleged deceptive activity and material misrepresentations to customers concerning its trading activities. ICAP agreed to settle the SEC's charges by, among other things, paying $25 million in disgorgement and penalties. The SEC additionally charged five ICAP brokers for aiding and abetting the firm's fraudulent conduct and two senior executives for failing reasonably to supervise the brokers. The individuals have each agreed to pay penalties to settle the SEC's charges.
As an inter-dealer broker, ICAP Securities USA LLC (ICAP) matches buyers and sellers in over-the-counter markets for various securities, such as U.S. Treasuries and mortgage-backed securities, by posting trade information on computer screens accessed by its customers who make trading decisions based in part on such information. Inter-dealer brokers with greater trade activity on their screens often are better positioned to attract customer orders and earn more commissions than those whose screens reflect little or no trading activity.
The SEC's enforcement action finds that ICAP, through its brokers on its U.S. Treasuries (UST) desks, displayed fictitious flash trades also known as "bird" trades on ICAP's screens and disseminated false trade information into the marketplace in order to attract customer attention to its screens and encourage actual trading by these customers. ICAP's customers believed the displayed fake trades to be real and relied on the phony information to make trading decisions.
According to the SEC's order, ICAP's UST brokers displayed thousands of fictitious flash trades to ICAP's customers between December 2004 and December 2005. The SEC also finds that ICAP represented to its off-the-run UST customers that its electronic trading system would follow certain workup protocols in handling customer orders. Such ICAP customers therefore expected that their orders, once entered onto ICAP's screens, would be filled according to the workup protocols. However, ICAP's brokers on the UST desks used manual tickets to bypass such protocols and close out of thousands of positions in their ICAP house accounts, thereby rendering ICAP's representations concerning the workup protocols false and misleading. In some instances, ICAP's customers' orders received different treatment than the customers expected pursuant to the workup protocols.
The SEC's order further finds that ICAP held itself out as a firm that did not engage in trading that subjected its own capital to risk. ICAP's regulatory filings routinely made this point, noting specifically in one instance that the firm "does not engage in proprietary trading." During the relevant period, however, two former ICAP brokers on the voice-brokered collateral pass-through mortgage-backed securities (MBS) desk routinely engaged in profit-seeking proprietary trading that rendered ICAP's representations regarding proprietary trading false and misleading. The SEC's order also finds that ICAP failed to make and keep certain required books and records on the UST desks and the MBS desk.
Without admitting or denying the SEC's findings, ICAP has agreed to a censure, to cease and desist from committing or causing any violations of Section 17(a)(2) and 17(a)(3) of the Securities Act, Section 15C of the Exchange Act and 17 CFR Parts 404 and 405, and to pay $1 million in disgorgement and $24 million in penalties. ICAP also has agreed to retain an independent consultant to, among other things, review ICAP's current controls and compliance mechanisms; its trading activities on all desks to ensure that the violations described in the order are not occurring elsewhere at ICAP; and ICAP's books and records pertaining to trading records. Based on its review, the independent consultant will recommend any additional policies and procedures which are reasonably designed to ensure that ICAP complies with applicable provisions of the federal securities laws.
December 17, 2009
Six Ernst & Young Partners Settle SEC Accounting Charges Involving Bally Total Fitness
The SEC charged Ernst & Young LLP and six of its current and former partners, including three who are members of the firm's national office, for their roles relating to an accounting fraud at Bally Total Fitness Holding Corporation. The SEC finds that E&Y knew or should have known about Bally's fraudulent financial accounting and disclosures. The SEC finds that E&Y issued unqualified audit opinions stating that Bally's 2001 to 2003 financial statements were presented in conformity with Generally Accepted Accounting Principles and that E&Y's audits were conducted in accordance with Generally Accepted Auditing Standards. These opinions were false and misleading.
E&Y, which was the independent auditor of the Chicago-based operator of fitness centers, has agreed to pay $8.5 million to settle the SEC's charges. In addition, E&Y agreed to undertake measures to correct policies and practices relating to its violations, and agreed to cease and desist from violations of the securities laws. Each of the E&Y partners also has settled the SEC's charges against them.
Bally's former chief financial officer John W. Dwyer and former controller Theodore P. Noncek also were charged today by the SEC, which previously charged Bally with accounting fraud in 2008. Dwyer and Noncek agreed to settle the SEC's charges.
The SEC's order against E&Y finds that the firm identified Bally as a risky audit because its managers were former E&Y audit partners who had "historically been aggressive in selecting accounting principles and determining estimates," and whose compensation plans placed "undue emphasis on reported earnings." Out of more than 10,000 audit clients in North America, E&Y identified Bally as one of E&Y's riskiest 18 accounts and as the riskiest account in the Lake Michigan Area.
FINRA Reminds Firms of Obligations Regarding Principal-Protected Notes
FINRA recently issued a regulatory notice on Principal-Protected Notes to remind firms of their sales practice obligations relating to principal-protected notes. Here is the executive summary:
The retail market for principal-protected notes (PPNs) has grown in recent
years, in part because they are often marketed as combining the relative
safety of bonds with a potential for growth not available with traditional
fixed income products. However, these products are not risk-free, and
their terms and structures can be complex. Firms must ensure that their
promotional materials or communications to the public regarding these
products are fair and balanced, and do not overstate either the level of
protection offered or an investment’s potential returns. Firms also have a
duty to ensure that their registered representatives understand the risks,
terms and costs associated with these products, and that they perform an
adequate suitability analysis before recommending them to a customer.
December 16, 2009
SEC Obtains Preliminary Injunction Against Co-Founder of Canopy Financial
The SEC announced that on December 8, 2009, the U.S. District Court of the Northern District of Illinois entered a preliminary injunction order enjoining Jeremy J. Blackburn, a co-founder and former President and Chief Operating Officer of privately-held Canopy Financial, Inc. (Canopy), from violating the antifraud provisions of the Securities Act of 1933 [Section 17(a)] and the Securities Exchange Act of 1934 [Section 10(b) and Rule 10b-5 thereunder] (Preliminary Injunction Order). Blackburn consented to the entry of the Preliminary Injunction Order. The asset freeze order entered by the Court on November 30, 2009, freezing Blackburn's assets continues.
Filed on November 30, 2009, in an emergency TRO action, the Commission's complaint alleges that Blackburn engaged in a scheme to defraud investors in a $75 million private placement offering and as part of the scheme misappropriated investor funds. The Commission's Complaint seeks, among other things, permanent injunctions against Blackburn and Canopy. The Commission's Complaint also seeks the disgorgement of ill-gotten gains, plus prejudgment interest thereon, and civil penalties.
Blackburn was charged in a federal criminal complaint unsealed on December 2, 2009, in the Northern District of Illinois.
SEC Finds Trautman Wasserman CEO Participated in Market Timing, Late Trading of Mutual Funds
The SEC found that Gregory O. Trautman, who was co founder, president, and chief executive officer of Trautman Wasserman & Company (TWCO), a registered broker dealer, willfully violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Exchange Act Rule 10b 5 by participating in a scheme involving deceptive market timing and illegal late trading of mutual fund shares. The Commission found that Trautman, as TWCO's president and chief executive officer, engaged in numerous deceptive acts as part of the scheme: he personally engaged in the late trading of mutual funds on behalf of several customers; he deceptively sought market timing capacity from mutual funds by materially misrepresenting the nature of TWCO's trading and its impact on the funds; and he fraudulently induced customers to invest or to continue investing with TWCO by falsely assuring them of the legality of the late trading. In addition, the Commission found that Trautman willfully aided and abetted, and was a cause of, TWCO's violations of Exchange Act Section 15(c) and Exchange Act Rule 10b 3, which prohibit broker dealers from effecting transactions in, or inducing or attempting to induce, the purchase or sale of securities by means of a manipulative, deceptive, or other fraudulent device or contrivance.
For these violations, which the Commission noted "generated at least $22 million in illicit profits for TWCO and caused dilution losses to mutual fund shareholders of more than $102 million," Trautman was barred from association with any broker or dealer, ordered to cease and desist from committing future violations of the relevant federal securities law provisions, ordered to pay $608,886 in disgorgement plus prejudgment interest, and assessed a $120,000 civil money penalty.
SEC Adopts New Disclosures on Compensation and Corporate Governance
The SEC today adopted amendments to its disclosure rules that will enhance information provided in connection with proxy solicitations and in other reports filed with the Commission. The amendments will require registrants to make new or revised disclosures about: compensation policies and practices that present material risks to the company; stock and option awards of executives and directors; director and nominee qualifications and legal proceedings; board leadership structure; the board’s role in risk oversight; and potential conflicts of interest of compensation consultants that advise companies and their boards of directors. The amendments will be applicable to proxy and information statements, annual reports and registration statements under the Securities Exchange Act of 1934, and registration statements under the Securities Act of 1933 as well as the Investment Company Act of 1940. The SEC is also transferring from Forms 10-Q and 10-K to Form 8-K the requirement to disclose shareholder voting results.
EFFECTIVE DATE: February 28, 2010
SEC Adopts Safeguards to Protect Assets of Investment Adviser Clients
The SEC today adopted rules designed to increase the protections for investors who turn their money and securities over to an investment adviser registered with the SEC. The new rules provide safeguards where there is a heightened potential for fraud or theft of client assets. Most investment advisers do not maintain physical custody of their clients’ assets. Instead, those assets are held by a qualified third-party custodian, such as a regulated bank or a broker-dealer. However, in frauds like Bernard Madoff's, advisers have access to their clients’ assets and often cover up their misuse by distributing false account statements to their clients reflecting assets that didn’t really exist. The SEC’s new rules are intended to help prevent that from happening.
The SEC’s custody rule as amended today would promote independent custody and require the use of independent public accountants as third-party monitors. Depending on the investment adviser’s custody arrangement, the rules would require the adviser to be subject to a surprise exam and custody controls review that are generally not required under existing rules.
Surprise Exam — The adviser is now required to engage an independent public accountant to conduct an annual “surprise exam” to verify that client assets exist. Such a surprise examination would provide another set of eyes on the client’s assets, and provide additional protection against theft or misuse. The accountants would have to contact the SEC if they discovered client assets were missing.
Custody Controls Review — When the adviser or an affiliate serves as custodian of client assets, the adviser is now required to obtain a written report — prepared by an accountant that is registered with and subject to regular inspection by the PCAOB — that, among other things, describes the controls in place at the custodian, tests the operating effectiveness of those controls and provides the results of those tests. These reports are commonly known as SAS-70 reports. Requiring that the accountant be registered with and subject to inspection by the PCAOB provides greater confidence regarding the quality of these reports.
The new rules also will impose an important new control on advisers to hedge funds and other private funds that comply with the custody rule by obtaining an audit of the fund and delivering the fund's financial statements to fund investors. The rule will require that the auditor of such a private fund be registered with and subject to regular inspection by the PCAOB.
The new rules also require that the adviser reasonably believe that the client’s custodian delivers the account statements directly to the client, to provide greater assurance of the integrity of these account statements. It also will enable clients to compare the account statement they receive from their adviser to determine that the account transactions are proper.
The rule amendments adopted today are effective 60 days after their publication in the Federal Register.
The full text of the final rule amendments will be posted to the SEC Web site as soon as possible.
SC Charges Two Former Employees at Financial Services Firms with Insider Trading
The SEC today charged Vinayak S. Gowrish, a former associate at multi-billion dollar private equity firm TPG Capital L.P., and Adnan S. Zaman, a former vice president and investment banker at Lazard Frères & Co. LLC, and two of their friends in a serial insider trading scheme to profit on confidential merger and acquisition information. According to the SEC, Gowrish and Zaman stole confidential information from their firms in connection with five deals and tipped two friends in exchange for kickbacks. Pascal S. Vaghar and Sameer N. Khoury both then traded stock and options on the basis of the nonpublic information and made nearly $500,000 in illicit profits.
According to the SEC's complaint, filed in U.S. District Court for the Northern District of California, Gowrish misappropriated and illegally tipped material, nonpublic information that TPG was in negotiations to acquire Sabre Holdings Corp., TXU Corp., and Alliance Data Systems Corp. Gowrish illegally tipped this information to Zaman, who then tipped the inside information to Vaghar and Khoury. The SEC further alleges that Zaman misappropriated and illegally tipped material, nonpublic information that Lazard clients were in negotiations to acquire webMethods, Inc. and Myogen, Inc. Zaman tipped the information to Vaghar and Khoury through in-person meetings or by writing trading instructions — including the ticker symbol of the call option (or stock) and the number of contracts (or shares) to purchase — on yellow sticky notes. Coded text messages were used to exchange trading instructions. In exchange for the confidential information, Gowrish received cash kickbacks from Vaghar, and Zaman received kickbacks in the form of cash, free rent, and other items of value from Vaghar and Khoury totaling approximately $70,000.
Zaman, Vaghar, and Sameer Khoury have offered to settle to full injunctive relief and disgorgement, and Zaman has agreed to be permanently barred from associating with any broker or dealer. In addition, Sameer Khoury's brother, Elias Khoury, who is not accused of any wrongdoing, consented to the entry of a final judgment ordering him, as a relief defendant, to disgorge the profits from trades Sameer Khoury executed in his account. The Commission is seeking permanent injunctive relief, disgorgement of illicit profits with prejudgment interest, and the imposition of financial penalties against Gowrish.
December 15, 2009
Galleon Group Founder Indicted on Insider Trading ChargesA Federal grand jury indicted Raj Rajaratnam, founder of Galleon Group, and Danielle Chiesi, a former Bear Stearns hedge fund manager, of operating a complex insider trading ring that has been described by the government as the largest insider trading case involving hedge funds. Both are expected to plead not guilty. NYTimes, Grand Jury Indicts Galleon Chief and Associate ; WSJ, Rajaratnam, Chiesi Charged in Insider Case.
SEC and Former COO of Ark Asset Management Settle Trade Allocation Charges
The SEC and Stephen Jay Mermelstein settled charges under the Investment Advisers Act that Mermelstein, the former Chief Operating Officer of a formerly registered investment adviser, Ark Asset Management, Co., Inc. (Ark), failed reasonably to supervise a portfolio manager who engaged in fraudulent trade allocation practices during the years 2000 through 2003. As a result of this fraudulent conduct, Ark realized at least $19 million of ill-gotten gains. The SEC's order suspends Mermelstein from association in a supervisory capacity with any investment adviser for a period of six months and orders Mermelstein to pay a civil penalty of $50,000.
In a related proceeding, the SEC instituted an administrative proceeding against against Ark Asset Management Co., Inc. (Ark). It alleges that Ark engaged in fraudulent trade allocation practices by favoring certain proprietary accounts over certain client accounts in the allocation of securities between 2000 and 2003 and realized at least $19 million of ill-gotten gains in the form of performance fees from the proprietary accounts. Additionally, Ark's Form ADV filings during the relevant period were materially misleading. Ark also committed books and records violations by failing to make and keep true and accurate order memoranda.
Based on the above, the Order directs that a public hearing shall be convened at a time and place to be fixed not earlier than 30 days nor later than 60 days after service of the notice before an Administrative Law Judge to take evidence and determine whether the allegations are true, and that an Administrative Law Judge shall issue an initial decision within 300 days of the date of service of the Order. (Rel. IA-
House Bill Allows Broker-Dealers to Switch Hats
Investment News reports on a provision buried in the financial reform legislation passed by the House last year that would allow broker-dealers to switch hats. The legislation would require the SEC to adopt rules that would establish a fiduciary duty for brokers who provide investment advice; however, the bill goes on to say that “Nothing in this section shall require a broker or dealer or registered representative to have a continuing duty of care or loyalty to the customer after providing personalized investment advice about securities.” Purportedly added after lobbying by discount brokerage firms, the investment advisory community is up in arms. InvNews, Adviser groups blow tops over House bill's ‘hat-switching' clause.
FiNRA Foundation Releases Survey on How People Manage Their Money
The FINRA Investor Education Foundation announced the release of the National Financial Capability Study today at a special event at the U.S. Department of the Treasury. The National Financial Capability Study established a baseline measure of the ability of Americans to manage their money, benchmarking four key indicators of financial capability and evaluating how these indicators vary with underlying demographic, behavioral, attitudinal and financial literacy characteristics. It consists of findings from three linked surveys:
National Survey. A national, random-digit-dialed telephone survey of 1,488 respondents with over-sampling to enable segmentation by selected demographic variables (e.g., race, household income, education level) (released December 2009)
State-by-State Survey. A state-by-state online survey of approximately 25,000 respondents (roughly 500 per state, plus DC) (to be released in 2010)
Military Survey. An online survey of 800 military personnel and spouses (to be released in 2010).
According to the executive summary:
1. Making Ends Meet. Nearly half of survey respondents reported facing difficulties
in covering monthly expenses and paying bills.
2. Planning Ahead. The majority of Americans do not have “rainy day” funds set
aside for unanticipated financial emergencies and similarly do not plan for
predictable life events, such as their children’s college education or their own
3. Managing Financial Products. More than one in five Americans reported engaging
in non-bank, alternative borrowing methods (such as payday loans, advances on
tax refunds or pawn shops). And few appear to be knowledgeable about the
financial products they own.
4. Financial Knowledge and Decision-Making. While many American adults believed
they were adept at dealing with day-to-day financial matters, they nevertheless
engaged in financial behaviors that generated expenses and fees and exhibited a
marked inability to do basic interest calculations and other math-oriented tasks.
In addition, few compared the terms of financial products or shopped around
before making financial decisions.
Wells Fargo Announces It Will Repay $25 Billion TARP MoneyWells Fargo joins the TARP exodus. It announced yesterday that it will repay the $25 billion government investment in part through a $10.4 billion common stock offering.
Backdating Charges Dismissed Against Two Broadcom Executives
A federal district court dismissed fraud charges against Broadcom co-founder Henry T. Nicholas III and former CFO William J. Ruehle stemming from backdating stock options, on grounds of prosecutorial misconduct. The judge also dismissed an SEC civil suit against four Broadcom executives.
The judge found that the prosecutors tried to prevent three key defense witnesses from testifyinng, improperly contacted lawyers for defense witnesses, and leaked information about grand jury proceedings to the media. NYTimes, Charges Dismissed Against 2 Broadcom Executives.
December 14, 2009
Citigroup Will Repay $20 Billion to Treasury
Citigroup announced that it will repay $20 billion in TARP funds to the government by issuing common stock, thus ending the government's restrictions over compensation. Citigroup is the last major financial services firm under TARP restrictions. Treasury will also make a secondary offering of up to $5 billion of the common shares it owns and plans to sell off the remainder of its 34% stake in the next 6-12 months. That's a lot of Citi shares hitting the market at once.
Vikram Pandit, Chief Executive Officer, said, "The TARP program was designed to provide assistance until banks were in a position to repay it prudently. We are pleased to be able to repay the U.S. government's trust preferred securities and to terminate the loss-sharing agreement. We owe the American taxpayers a debt of gratitude and recognize our obligation to support the economic recovery through lending and assistance to homeowners and other borrowers in need."
Treasury continues to own warrants for another 464 million shares.
SEC Charges Former Pride Int'l Officer with FCPA Violations
On December 11, 2009, the SEC charged Bobby Benton, a former officer of Pride International, Inc. (Pride), with violations relating to bribes paid to foreign officials in Mexico and Venezuela. The complaint alleges that in December 2004, Benton authorized the bribery of a Mexican customs official in return for favorable treatment regarding customs deficiencies identified during an inspection of a supply boat. The complaint further alleges that Benton had knowledge of a second bribe paid to a different Mexican customs official that same month. It is also alleged that from approximately 2003 to 2005, a manager of a Pride subsidiary in Venezuela authorized the bribery of an official of Venezuela's state-owned oil company in order to secure extensions of three drilling contracts. Benton, in an effort to conceal these payments, redacted references to bribery in an action plan responding to an internal audit report and signed two false certifications in connection with audits and reviews of Pride's financial statements denying any knowledge of bribery.
The SEC's complaint charges Benton with violating Sections 13(b)(5) and 30A of the Securities Exchange Act of 1934 and Rules 13b2-1 and 13b2-2 thereunder, and aiding and abetting violations of Sections 13(b)(2)(A), 13(b)(2)(B), and 30A of the Securities Exchange Act of 1934. The SEC's action seeks a permanent injunction, a civil penalty, and the disgorgement of ill-gotten gains plus prejudgment interest.
SEC Re-opens Comment Period for Shareholder Director Nomination Proposal
The SEC announced that it is re-opening the public comment period for its shareholder director nomination proposal to seek views on additional data and related analyses received by the Commission at or after the close of the original public comment period on August 17. The SEC proposed changes to the federal proxy rules in June to facilitate the rights of shareholders to nominate directors on corporate boards. In the release, the SEC specifically mentioned the following:
• Report on Effects of Proposed SEC Rule 14a-11 on Efficiency, Competitiveness and Capital Formation, in Support of Comments by Business Roundtable, NERA Economic Consulting (submitted on August 17, 2009 by the Business Roundtable);
•Why Did Some Banks Perform Better During the Credit Crisis? A Cross-Country Study of the Impact of Governance and Regulation, Andrea Beltratti and Rene M. Stulz (submitted on September 11, 2009 by the Business Roundtable);
The Limits of Private Ordering: Restrictions on Shareholders’ Ability to Initiate Governance Change and Distortions of the Shareholder Voting Process, The Corporate Library (submitted on November 18, 2009 by the Shareowner Education Network and the Council of Institutional Investors); and
• Supplemental analysis of share ownership and holding period patterns from Form 13F data by the Commission’s Division of Risk, Strategy, and Financial Innovation, dated November 24, 2009.
The SEC staff continues to expect to make a final recommendation to the Commission early next year.
In addition to re-opening the shareholder director nominations comment period, the Commission will consider final action Wednesday on its proposal to improve the disclosure of information that public companies provide to their shareholders in proxy statements. The proposed rules apply to executive compensation, qualifications of directors and nominees, and other proxy disclosures.
At its December 16 meeting, the Commission also will consider adopting proposed measures to strengthen safeguards of investor funds controlled by investment advisers.
December 13, 2009
Colesanti on U.S. v. Finnerty
Not Dead Yet: How New York's Finnerty Decision Salvaged the Stock Exchange Specialist, by Scott Colesanti, Hofstra University School of Law, was recently posted on SSRN. Here is the abstract:
In recent years, regulators of financial centers have attempted to criminalize practices traditionally and begrudgingly accepted by the market.
In 2007, a federal judge in the Southern District of New York effectively halted the government's attempts at prohibiting "interpositioning," a questionable strategy that challenges the ability of the stock exchange Specialist to concurrently serve both his own accounts and those of the public.
To wit, the publicized judgment notwithstanding the verdict of Judge Denny Chin in the Finnerty case raised many questions about prosecutors' application of S.E.C. Rule 10b-5 to trading behavior that had been noted for decades; in turn, the Judge's written decision revitalized the debate over the utility of market players (like Specialists) who have enjoyed the best seats on American exchange trading floors for almost 150 years.
Within the framework of a famed Broadway show, this article examines the case of U.S. v. Finnerty (while providing a history of the stock exchange Specialist) and a comparison to other cases faulting self-dealing by such professionals. In addition to highlighting the judicial questioning of the criminalization of practices normally incurring reprimands and fines, the article presents a framework for discussion of the primary roles of stock exchanges themselves - specifically, when do market centers owe a duty to their public customers, and when are its intermediaries free to fend for themselves?
Ahdieh on the Regulatory State
The Visible Hand: Coordination Functions of the Regulatory State, by Robert B. Ahdieh, Emory Law School, was recently posted on SSRN. Here is the abstract:
“We are all socialists now,” Newsweek magazine declared some months ago. And with Republican stalwarts George Bush, Chris Cox, and Alan Greenspan respectively presiding over two of the largest expansions in federal programs since the New Deal, confessing to the failures of self-regulation, and calling for some nationalization of U.S. banks, surely the authors were on to something. More accurately – if no less dramatically – it is clear that the reign of de-regulation as the motivating framework for the design of regulatory policy, and for scholarly analysis of the regulatory state, is now behind us. Less clear, by contrast, is what should be put in its place.
In what follows, I argue that an essential element in our efforts to re-conceptualize the regulatory state must be a heightened emphasis on its role in encouraging, fostering, and facilitating coordination. In a variety of increasingly important spheres of the modern social and economic order, the need for efficient coordination demands the embrace of distinct forms of regulation, in the service of distinct ends. In many areas of regulatory concern, command-and-control regulation can serve to minimize the incentives of individuals to abandon socially optimal equilibria, in the pursuit of private gain. In other critical areas, however, an analysis focused on individuals, on incentives, and on defection is inapposite. When it comes to preventing financial crises, developing the infrastructure of the internet, and articulating common standards for high-definition television – to name but a few examples – regulation designed to alter individual payoffs proves to be both unduly costly and inadequately effective. In these and other coordination settings, a regulatory paradigm oriented to group and social dynamics, to expectations and information, and to failures of coordination emerges as a kind of “new regulation.”