Securities Law Prof Blog

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

Friday, October 29, 2010

SEC's Corp Fin Reminds Companies of Disclosure Obligations Related to Mortgages and Foreclosures

The SEC has posted on its website a Sample Letter sent in October 2010 to public companies on accounting and disclosure issues related to potential risks and costs associated with mortgage and foreclosure-related activities or exposures.  The letter is intended as a reminder of disclosure obligations to consider in upcoming Form 10-Qs and subsequent filings, in light of continued concerns about potential risks and costs associated with mortgage and foreclosure-related activities or exposures.

October 29, 2010 in SEC Action | Permalink | Comments (0) | TrackBack (0)

SEC & CFTC Announce Meeting on Emerging Regulatory Issues

The SEC and the CFTC will hold a public meeting of the Joint CFTC-SEC Advisory Committee on Emerging Regulatory Issues on November 5.

Meeting agenda includes:

Receive a summary and recap from the staffs of the CFTC and SEC on the report issued Sept. 30, 2010.
Hear a report from the subcommittee on cross-market linkages.
Hear a report from the subcommittee on pre-trade risk management.
Discuss potential recommendations and responses.

October 29, 2010 in SEC Action | Permalink | Comments (0) | TrackBack (0)

SEC Staff Releases Progress Report on Global Accounting Standards Work Plan

The SEC's Office of the Chief Accountant and Division of Corporation Finance today published their first progress report on the Work Plan related to global accounting standards.  The Commission directed agency staff earlier this year to execute the Work Plan to provide the information needed to evaluate the implications of incorporating International Financial Reporting Standards (IFRS) into the financial reporting system for U.S. issuers. The Commission indicated that following successful completion of the Work Plan and the convergence projects of the Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB), it will be in a position in 2011 to determine whether to incorporate IFRS into the U.S. financial reporting system.

The Work Plan addresses six key areas:

  • Sufficient development and application of IFRS for the U.S. domestic reporting system.
  • The independence of standard setting for the benefit of investors.
  • Investor understanding and education regarding IFRS.
  • Examination of the U.S. regulatory environment that would be affected by a change in accounting standards.
  • The impact on issuers both large and small, including changes to accounting systems, changes to contractual arrangements, corporate governance considerations, and litigation contingencies.
  • Human capital readiness.

The SEC staff expects to continue to report periodically on the status of the Work Plan in 2011.

October 29, 2010 in SEC Action | Permalink | Comments (0) | TrackBack (0)

Thursday, October 28, 2010

SEC Charges Two Massachusetts Foreign Currency Traders with Fraud

The SEC charged two foreign currency traders and their Boston-based company with operating a fraudulent scheme in which they sent investors misleading account statements while stealing their funds and incurring major trading losses.  According to the SEC, Craig Karlis and Ahmet Devrim Akyil fraudulently raised approximately $40 million from approximately 750 investors in a purported foreign currency (Forex) trading venture through their firm Boston Trading and Research LLC (BTR). Investors were falsely promised that BTR had a system in place to limit trading losses. BTR also falsely claimed to investors that "we do not profit unless you do" while in reality Karlis and Akyil were illegally diverting investor money for their own personal use as well as to fund BTR's operations and pay expenses for other companies with which they were associated.

According to the SEC's complaint, for a minimum investment of $10,000, investors could deposit money with the BTR program. BTR used a website, sales representatives and live presentations by Karlis and Akyil to solicit funds from investors around the world. Investors provided Akyil with a limited power of attorney that granted him the right to direct the trading of their funds in the Forex market.  The SEC's complaint charges Akyil, Karlis, and BTR with violating the antifraud and registration provisions of the federal securities laws, and seeks civil injunctions, the return of ill-gotten gains, and financial penalties.

Separately, the U.S. Attorney's Office for the District of Massachusetts today unsealed an indictment charging Akyil and Karlis with criminal violations based on the same misconduct.

October 28, 2010 in SEC Action | Permalink | Comments (0) | TrackBack (0)

FINRA Files Proposal for All-Public Arbitration Panels in Customer Disputes

FINRA filed with the SEC its proposed rule change that would give customers the option of selecting all-public arbitrator panels in disputes with their brokerage firms or registered representatives.  The SEC has not yet published the rule change for public comment, but it is sure to generate much discussion and controversy.  FINRA previously announced that it was going to propose this rule change "to enhance confidence in and increase the perception of fairness in the FINRA arbitration process."  SIFMA said that it was waiting to see the proposed rule change before commenting on it.

October 28, 2010 in Other Regulatory Action | Permalink | Comments (0) | TrackBack (0)

FINRA Proposes New Disclosures from Broker-Dealers to Retail Investors

FINRA requests comment on  a concept proposal to require broker-dealers to provide a disclosure statement for retail investors before commencing a business relationship with them.  As conceived by FINRA staff, a possible new rule proposal would require a firm, at or prior to commencing a business relationship with a retail customer, to provide to the customer a written statement that sets forth the types of brokerage accounts and services the firm provides to retail customers and the conflicts associated with such services. A “retail customer” would mean a customer that does not qualify as an institutional account under NASD Rule 3110(c)(4), essentially entities and natural persons with total assets of less than $50 million.    The comment period expires December 27, 2010.

October 28, 2010 in Other Regulatory Action | Permalink | Comments (0) | TrackBack (0)

Wednesday, October 27, 2010

SEC Scheduled to Consider Risk Management Controls for Broker-Dealers with Market Access

The next Open Meeting of the SEC will be held on November 3, 2010.  The subject matter of the Open Meeting will be:

The Commission will consider whether to adopt new Rule 15c3-5, Risk Management Controls for Brokers or Dealers with Market Access, under the Securities Exchange Act of 1934. The new rule would require brokers or dealers with access to trading directly on an exchange or alternative trading system (ATS), including those providing sponsored or direct market access to customers or other persons, to implement risk management controls and supervisory procedures reasonably designed to manage the financial, regulatory, and other risks of this business activity. Among other things, new Rule 15c3-5 would effectively prohibit broker-dealers from providing "unfiltered" or "naked" sponsored access to any exchange or ATS.
The Commission will consider whether to propose a new rule under Section 763(g) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203, to prohibit fraud, manipulation, and deception in connection with security-based swaps.
The Commission will consider whether to propose rules and forms to implement Section 21F of the Securities Exchange Act of 1934 (Exchange Act) entitled "Securities Whistleblower Incentives and Protection." Section 21F, as added by Section 922 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, provides that the Commission shall pay awards, under regulations prescribed by the Commission and subject to certain limitations, to eligible whistleblowers who voluntarily provide the Commission with original information about a violation of the federal securities laws that leads to the successful enforcement of a covered judicial or administrative action, or a related action.

October 27, 2010 in SEC Action | Permalink | Comments (0) | TrackBack (0)

SEC Seeks Comments on Extraterritorial Private Rights of Action

Section 929Y of Dodd-Frank directs the SEC to solicit public comment and conduct a study to determine the extent to which private rights of action under the antifraud provisions of the Securities Exchange Act of 1934 should be extended to cover transnational securities fraud. The Commission is soliciting comment on this question and on related questions. It will accept comments regarding issues related to the study on or before February 18, 2011.  Study on Extraterritorial Private Rights of Action

October 27, 2010 in SEC Action | Permalink | Comments (0) | TrackBack (0)

Former San Diego Officials Settle SEC Charges Over Failure to Disclose Pension Costs

The SEC announced that four former San Diego officials have agreed to pay financial penalties for their roles in misleading investors in municipal bonds about the city's fiscal problems related to its pension and retiree health care obligations.  It's the first time that the SEC has secured financial penalties against city officials in a municipal bond fraud case.  The SEC settlement requires judicial approval.

The SEC filed charges in April 2008 against former San Diego City Manager Michael Uberuaga, former Auditor & Comptroller Edward Ryan, former Deputy City Manager for Finance Patricia Frazier, and former City Treasurer Mary Vattimo.  According to the SEC, he officials knew the city had been intentionally under-funding its pension obligations so that it could increase pension benefits but defer the costs. They also were aware that the city would face severe difficulty funding its future pension and retiree health care obligations unless new revenues were obtained, benefits were reduced, or city services were cut. However, despite this knowledge, they failed to inform municipal investors about the severe funding problems in 2002 and 2003 bond disclosure documents.

The four former officials agreed to settle the SEC's charges without admitting or denying the allegations and consented to the entry of final judgments that permanently enjoin them from future violations of Securities Act of 1933 Section 17(a)(2). Under the settlement terms, Uberuaga, Ryan, and Frazier each pay a penalty of $25,000 and Vattimo pays a penalty of $5,000.

October 27, 2010 in SEC Action | Permalink | Comments (0) | TrackBack (0)

SIFMA Identifies Dodd-Frank Priorities

In a speech before the National Economists Club, SIFMA President and CEO Tim Ryan identified the organization's priorities in implementing Dodd-Frank:

To be most effective, SIFMA is focusing primarily on seven areas:

· systemic risk, specifically the new Financial Stability Oversight Counsel and its research arm the Office of Financial Research;

· resolution authority and living wills;

· oversight of the over-the-counter derivatives market;

· securitization and the credit rating agencies;

· capital and liquidity standards via Basel and Dodd-Frank;

· the future of proprietary trading and private equity under what’s come to be known as the Volcker Rule; and

· the creation of a federal fiduciary standard for investment advisors and broker/dealers who provide personalized investment advice to retail investors.

October 27, 2010 in Other Regulatory Action | Permalink | Comments (0) | TrackBack (0)

Securities Law Prof Named Among 25 Best Business Blogs

I am pleased to report that a Lexis Nexis survey named the Securities Law Prof Blog one of the 25 best business blogs for 2010.  Thanks to all of you who voted for me; I sincerely appreciate it!  You can now vote for my blog to be the BEST BLOG -- go to the Lexis Nexis site.  I have stiff competition, so I need your votes!  Voting is open for one week.

October 27, 2010 | Permalink | Comments (1) | TrackBack (0)

Monday, October 25, 2010

SIGTARP Identifies Harm to Government's Credibility as Cost of TARP

The Special Inspector General of the TARP Program released its Quarterly Report dated Oct. 26, 2010.  The 338-page report assesses TARP after two years and, consistent with previous reports, does not mince words in describing problems.  It identifies as a fundamental non-financial cost of TARP the "potential harm to the Government's credibility that has attended this Program," because of the lack of transparency, program mismanagement, and flawed decision-making processes that have fueled public anger.

October 25, 2010 in News Stories | Permalink | Comments (0) | TrackBack (0)