Securities Law Prof Blog

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

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Monday, July 12, 2010

SEC Approves FINRA Rule Change to Increase Names on Arbitrator Lists

The SEC approved a proposed rule change (SR-FINRA-2010-022), filed by the Financial Industry Regulatory Authority to amend the Codes of Arbitration Procedure to increase the number of arbitrators on lists generated by the Neutral List Selection System. Publication is expected in the Federal Register during the week of July 12.

July 12, 2010 in Other Regulatory Action | Permalink | Comments (0) | TrackBack (0)

Sunday, July 11, 2010

Senate Vote on Dodd-Frank Expected This Week

The Senate is expected to vote on the financial reform legislation this week.  The Dodd-Frank Act will rquire the SEC to conduct a number of studies (some with short deadlines) and engage in rulemaking on a number of issues.  Expect other projects to be put on the back burner.  WSJ, SEC Enters Overdrive to Prepare for Overhaul.

July 11, 2010 in News Stories | Permalink | Comments (1) | TrackBack (0)

Bank of America Tells SEC It Made Transactions to Conceal Debt

Bank of America Corp., in a letter to the SEC, admitted to making six transactions that concealed billions of dollars of debt, in order to cut the size of a unit's balance sheet and meet internal financial targets.  WSJ, BofA Admits Hiding Debt.

July 11, 2010 in News Stories | Permalink | Comments (0) | TrackBack (0)

How Effective is PCAOB?

Interesting reading in Sunday's Washington Post:  Critics question effectiveness of auditing oversight board

July 11, 2010 in News Stories | Permalink | Comments (0) | TrackBack (0)

SEC Approves Expanded BrokerCheck Disclosures

The SEC approved FINRA's proposed rule change to amend FINRA Rule 8312 (FINRA BrokerCheck Disclosure) to (i) expand the information released through BrokerCheck, both in terms of scope and time; and (ii) establish a formal process to dispute the accuracy of, or update, information disclosed through BrokerCheck.

July 11, 2010 in Other Regulatory Action, SEC Action | Permalink | Comments (0) | TrackBack (0)

Schapiro on Implementing Financial Reform

Speech by SEC Chairman Mary L. Schapiro, Remarks at the National Conference of the Society of Corporate Secretaries and Governance Professionals (Chicago, Illinois July 9, 2010):

Accountability Going Forward
I am committed to finalizing the many rules that the Commission has proposed over the past 18 months—and to continuing to strengthen our agency's operations across all divisions and offices. During the next 18 months, though, much of our focus could be implementing the important legislation pending before the Senate. That is because the Dodd-Frank Wall Street Reform and Consumer Protection Act would significantly expand the Commission's authority in many key areas, close regulatory gaps, and give us important tools that we need to better protect investors.

First—to highlight just a few—passage of the legislation would bring essential oversight to the over-the-counter derivatives market. Working with the CFTC, we would be writing rules that address, among other issues, capital and margin requirements; mandatory clearing; the operation of execution facilities and data repositories; and reporting and recordkeeping obligations.

Second, the bill calls on the SEC to study the effectiveness of existing standards of care for broker-dealers and investment advisers. We would be seeking public input and identifying legal and regulatory gaps, shortcomings or overlaps in these standards. The legislation also gives the SEC authority to promulgate rules that would impose a harmonized fiduciary standard on broker-dealers and investment advisers who provide personalized investment advice to retail or other customers. I have long advocated such a uniform fiduciary standard and I am pleased the legislation would provide us with the rulemaking authority necessary to implement it.

Third, the legislation would require many advisers to hedge funds and other private funds to register with the SEC. We would be adopting rules governing recordkeeping and reporting, and following these up with a newly-designed examination program.

Fourth, the legislation contains many provisions that would strengthen the ability of our enforcement program to protect investors, including the authority to issue subpoenas on a nationwide basis in civil actions and clarifying an important component of our "aiding and abetting" authority.

Finally, among other things, the bill would require us to adopt many rules enhancing corporate disclosures, particularly with respect to executive compensation. These are areas that we recognize are quite complex, and we expect to be well-served by public comments, so I hope you will be generous in offering your insights.


July 11, 2010 in SEC Action | Permalink | Comments (0) | TrackBack (0)

Investment Adviser Settles SEC Charges It Marked Closing Price of Stock to Avoid SOX 404 Requirements

On July 8, 2010, the SEC settled an administrative proceeding against Ephraim Fields (Fields), the owner and manager of a registered investment adviser, Clarus Capital Management, LCC (Clarus Management).  The SEC alleged that Fields marked the closing price of the stock of Cleveland, Ohio based Hawk Corporation (Hawk) to delay the requirement that Hawk comply with the internal control provisions of SOX 404.

The Order finds: on June 30, 2006, the closing price that would have triggered Hawk's obligation to comply with SOX 404 for its fiscal year ended Dec. 30, 2006 was $12.30 (trigger price); on June 30, 2006, one of Hawk's Corporate Executives called Fields and stated that if Hawk's stock closed below the trigger price that day, Hawk could avoid compliance with SOX 404 by year-end; based on the call, Fields believed the Corporate Executive wanted him to make sure that Hawk's stock closed below the trigger price. Accordingly, shortly after the call with the Corporate Executive, Fields submitted eight limit day orders on behalf of Clarus Capital, LLC (Clarus), an unregistered hedge fund for which Fields was the general partner and for which Clarus Management served as an investment adviser, to sell a total of 40,000 shares of Hawk at $12.29. The Order further finds that, as a result, Hawk's stock price was capped that day at $12.29.

Based on the above, the Order: (1) requires Fields to cease and desist from committing or causing any violations and any future violations of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder; (2) censures Fields; and (3) requires Fields to pay a civil money penalty in the amount of $50,000 to the United States Treasury. Fields consented to the issuance of the Order against him without admitting or denying any of the findings in the Order, except as to the Commission's jurisdiction over him and the subject matter of the proceedings, which he admitted.

July 11, 2010 in SEC Action | Permalink | Comments (0) | TrackBack (0)

Korsmo on Market Manipulation Class Actions

Mismatch: The Misuse of Market Efficiency in Market Manipulation Class Actions, by Charles Korsmo, Brooklyn Law School, was recently posted on SSRN.  Here is the abstract:

Plaintiffs commonly bring two distinct types of claims under Section 10(b) of the Securities Exchange Act of 1934: 1) claims of material misrepresentations or omissions; and 2) claims of trade-based market manipulation. Despite the distinctive features of the two types of claims, courts have tended to treat them identically when applying the “fraud on the market” doctrine. In particular, courts have required both types of plaintiffs to make identical showings that the relevant security traded in an “efficient market” in order to gain a presumption of reliance. The reasons for requiring such a showing by plaintiffs in a misrepresentation case are, however, inapplicable in market manipulation cases. Plaintiffs alleging market manipulation should not be required to demonstrate an efficient market in order to benefit from the fraud on the market doctrine’s presumption of reliance. If plaintiffs are made to make any showing at all, it should be a showing of loss causation.

July 11, 2010 in Law Review Articles | Permalink | Comments (0) | TrackBack (0)

Matsa & Miller, Evidence on Female Style in Corporate Leadership from Norway

Female Style in Corporate Leadership? Evidence from Quotas, by David A. Matsa, Northwestern University - Department of Finance, and Amalia R. Miller, University of Virginia (UVA) - Department of Economics, was recently posted on SSRN.  Here is the abstract:

In 2006, Norway imposed a quota requiring that the boards of directors of public limited companies be composed of at least 40 percent female members. Governments across Europe have since adopted or proposed similar rules. This paper examines the impact of the Norwegian quota on the management style of affected firms by comparing them to other Scandinavian companies, public and private, that were unaffected by the rule. Based on differences-in-differences and triple-difference models, we find that firms affected by the quotas increased relative labor costs and employment levels, reducing short-term profits. There is no evidence of preexisting trends, and the effects are strongest among firms that had no female board members before the quota was introduced. The results are consistent with changes in board composition affecting corporate governance and strategy, and with prior research suggesting that female managers may be more stakeholder-oriented than men.

July 11, 2010 in Law Review Articles | Permalink | Comments (0) | TrackBack (0)