Securities Law Prof Blog

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

Friday, April 1, 2011

Senate Republicans Introduce Repeal of Dodd-Frank

From Senator Jim DeMint's website:

Today, U.S. Senator Jim DeMint (R-South Carolina), chairman of the Senate Steering Committee, announced the introduction of S. 712, The Financial Takeover Repeal Act of 2011. The bill would repeal the Dodd-Frank financial regulation bill that President Obama signed into law on July 21, 2010. Former Federal Reserve Chairman Alan Greenspan recently commented that the Dodd-Frank regulation “fails to meet [the] test of our times.” He warned, “The act may create the largest regulatory-induced market distortion since America’s ill-fated imposition of wage and price controls in 1971.”

Eighteen Republicans cosponsored the bill including U.S. Senators Lamar Alexander (R-Tennessee), Tom Coburn (R-Oklahoma), John Cornyn (R-Texas), Mike Crapo (R-Idaho), John Ensign (R-Nevada), Kay Bailey Hutchison (R-Texas), Jim Inhofe (R-Oklahoma), Johnny Isakson (R-Georgia), Mike Johanns (R-Nebraska), Ron Johnson (R-Wisconsin), Jon Kyl (R-Arizona), Mike Lee (R-Utah), Mitch McConnell (R-Kentucky), Rand Paul (R-Kentucky), Jim Risch (R-Idaho), Jeff Sessions (R-Alabama), John Thune (R-South Dakota), and David Vitter (R-Louisiana).

“We must repeal the Democrats’ takeover of the financial markets that favors Wall Street corporations, over-regulates small businesses with massive new bureaucracy and hurts consumers,” said Senator DeMint. “This financial takeover will strangle our economy and move jobs overseas unless it is repealed. Democrats rammed this government power-grab through last year, despite widespread concerns it would perpetuate federal bailouts, restrict credit to qualified borrowers, and raise costs for all Americans. Former Senate Banking Committee Chairman Chris Dodd actually said at the time, ‘No one will know until this is actually in place how it works.’ Nearly a year later, it’s clear that this bill has failed.

“The Dodd-Frank financial takeover is producing hundreds of new regulations, forcing banks to charge consumers higher fees, and institutionalizing ‘too big to fail’ policies that favor Wall Street companies over small businesses. If the Democrats were serious about financial reform that protects small businesses and consumers, they would join with Republicans to curb the power of the Federal Reserve, permanently end ‘too big to fail’ and wind down Fannie Mae and Freddie Mac,” said Senator DeMint.

A study conducted by Bloomberg Government found that after implementation of the Dodd-Frank regulations banks deemed “too big to fail” are expected to get even bigger, stating “the largest banks have grown larger since the financial crisis, and the number of ‘too big to fail banks’ will increase by 40 percent over the next 15 years.”

JPMorgan Chase Chairman & CEO Jamie Dimon recently said the Dodd-Frank regulations may “put the nails in the coffin” of the U.S. economy, calling it the most “irrational” legislation he’s ever seen, and that its provisions to limit debit-card fees is “basic price-fixing at its worst.”

The U.S. Chamber of Commerce recently highlighted a study that found the Dodd-Frank regulations “could cut capital spending by over $5 billion and cost the U.S. over 100,000 jobs.”

The government’s Special Inspector General for TARP, Neil Barofsky, flatly told Congress that “the financial-regulatory overhaul has ‘clearly failed’ to damp market expectations that the government will bail out systemically important firms.”

Also, recent news accounts have highlighted the fact that the Fed’s interchange rule, required by the Durbin amendment to Dodd-Frank, will force higher bank fees on Americans and reduce their choices in debit card purchases.

April 1, 2011 in News Stories | Permalink | Comments (0) | TrackBack (0)

NASDAQ and ICE Bid for NYSE Euronext

People have been waiting for it, and today NASDAQ OMX and Intercontinental Exchange announced a joint offer for NYSE Euronext, offering $42.50 in a combination of stock and cash (14.24 cash, .4069 NASDAQ stock, .1436 ICE stock).  This tops the NYSE merger proposal with Deutsche Boerse by 19%.  ICE would get the derivatives business, and NASDAQ would get the rest. 

April 1, 2011 in News Stories | Permalink | Comments (0) | TrackBack (0)

Thursday, March 31, 2011

Treasury Named as Selling Shareholder in Ally Financial Inc.’s IPO Registration Statement

The U.S. Department of the Treasury today announced that it has agreed to be named as a selling shareholder of common stock of Ally Financial Inc. (Ally) in Ally’s registration statement filed with the Securities and Exchange Commission (SEC) for a proposed initial public offering.  Treasury will retain the right, at all times, to decide whether and at what level to participate in the offering.
Treasury owns approximately 74 percent of the issued and outstanding common stock of Ally, as of December 31, 2010, as well as approximately $5.9 billion of mandatorily convertible preferred stock.   
Citi, Goldman, Sachs & Co., J.P. Morgan and Morgan Stanley are acting as Joint Bookrunners for the offering.   

March 31, 2011 in News Stories | Permalink | Comments (0) | TrackBack (0)

Agencies Propose Incentive-based Compensation Arrangements

The Office of the Comptroller of the Currency, Treasury (OCC); Board of Governors of the Federal Reserve System (Board); Federal Deposit Insurance Corporation (FDIC); Office of Thrift Supervision, Treasury (OTS); National Credit Union Administration (NCUA); U.S. Securities and Exchange Commission (SEC); and Federal Housing Finance Agency (FHFA) (the Agencies) are proposing rules to implement section 956 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The proposed rule would require the reporting of incentive-based compensation arrangements by a covered financial institution and prohibit incentive-based compensation arrangements at a covered financial institution that provide excessive compensation or that could expose the institution to inappropriate risks that could lead to material financial loss.

March 31, 2011 in Other Regulatory Action, SEC Action | Permalink | Comments (0) | TrackBack (0)

Wednesday, March 30, 2011

FINRA Arb Panel Orders Broker to Pay $1 Million to Madoff Investors

The Wall St. Journal reports that a FINRA arbitration panel ordered Robert M. Jaffe, a part-owner of Cohmad Securities Corp., to pay $1.1 million plus interest to a group of investors formed to invest in Bernie Madoff's ponzi scheme.  Jaffe and Cohmad previously settled SEC charges that they received millions of dollars from Madoff for steering investors to him.  WSJ, Broker Tied to Madoff Ordered to Pay $1.1 Million

March 30, 2011 in Securities Arbitration | Permalink | Comments (0) | TrackBack (0)

Debating the Costs of Dodd-Frank

This from the House Financial Services Committee website:

The Dodd-Frank Act will result in a bigger and more expensive Federal government. 

That’s the point the Financial Services Committee is driving home in a video released on Wednesday.  The video, which can be viewed on the Committee’s website and on YouTube, coincides with a hearing of the Oversight and Investigations Subcommittee on the budgetary and economic costs of implementing Dodd-Frank.  The Government Accountability Office estimates it will cost $2.9 billion to implement the law over five years.  The Federal government workforce will also have to increase by 2,600 new full-time employees, according to the GAO.

And this from Representative Barney Frank:

“The press has reported on a yet-to-be-released study by the Government Accountability Office stating that it will cost up to $2.9 billion over five years to implement the Wall Street Reform and Consumer Protection Act.”

“When the details of the report are made public, it will be important to put the cost analysis in proper perspective – there would be absolutely no cost to taxpayers if Republicans had not succeeded in stripping the funding mechanism from the bill during the conference committee.”

March 30, 2011 in News Stories | Permalink | Comments (0) | TrackBack (0)

Proposed Rules on Credit Risk Retention Are Published

These agencies (Office of the Comptroller of the Currency, Treasury; Board of Governors of the Federal Reserve System; Federal Deposit Insurance Corporation; U.S. Securities and Exchange Commission; Federal Housing Finance Agency; and Department of Housing and Urban Development) are proposing rules to implement the credit risk retention requirements of section 15G of the Securities Exchange Act of 1934, as added by section 941 of the Dodd-Frank Act. Section 15G generally requires the securitizer of asset-backed securities to retain not less than five percent of the credit risk of the assets collateralizing the asset-backed securities. Section 15G includes a variety of exemptions from these requirements, including an exemption for asset-backed securities that are collateralized exclusively by residential mortgages that qualify as “qualified residential mortgages,” as such term is defined by the Agencies by rule.  Comments must be received by June 10, 2011.

March 30, 2011 in Other Regulatory Action, SEC Action | Permalink | Comments (0) | TrackBack (0)

SEC Proposes Rules Requiring Listing Standards for Compensation Committees and Compensation Consultants

The SEC today voted unanimously to propose rules directing the national securities exchanges to adopt certain listing standards related to the compensation committee of a company’s board of directors as well as its compensation advisers, as required by the Dodd-Frank Act.  The SEC’s proposal also would require new disclosures from companies concerning their use of compensation consultants and conflicts of interest.

In particular, the proposal requires the “listing standards” to address the independence of the members on a compensation committee, the committee’s authority to retain compensation advisers, and the committee’s responsibility for the appointment, payment and work of any compensation adviser.

Public comments on the rule proposal should be received by April 29, 2011.

March 30, 2011 in SEC Action | Permalink | Comments (0) | TrackBack (0)

Tuesday, March 29, 2011

March 30 SEC Meeting Takes Up Credit Risk Retention, Listing Standards for Compensation Committees

SEC Open Meeting Agenda, March 30, 2011

Item 1:
 Division of Corporation Finance
The Commission will consider whether to propose joint rules with other Agencies to implement Section 941(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act relating to credit risk retention by securitizers of asset-backed securities.

Item 2:
 Division of Corporation Finance

The Commission will consider whether to propose a new rule and rule amendments to implement Section 952 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which requires the Commission to direct the national securities exchanges and national securities associations to adopt certain listing standards with respect to compensation committees and compensation advisers. Section 952 also requires the Commission to adopt new disclosure rules concerning the use of compensation consultants and conflicts of interest.

March 29, 2011 in SEC Action | Permalink | Comments (0) | TrackBack (0)


The SEC charged Cheng Yi Liang, a U.S. Food and Drug Administration (FDA) chemist, with insider trading on confidential information about upcoming announcements of FDA drug approval decisions, generating more than $3.6 million in illicit profits and avoided losses.  According to the SEC, Liang illegally traded in advance of at least 27 public announcements about FDA drug approval decisions involving 19 publicly traded companies. Some announcements concerned the FDA’s approval of new drugs while others concerned negative FDA decisions. Liang went to great lengths to conceal his insider trading. He traded in seven brokerage accounts, none of which were in his name. One belonged to his 84-year-old mother who lives in China.

In a parallel action, criminal charges filed by the Department of Justice against Liang were unsealed today.

According to the SEC’s complaint, Liang works in the FDA’s Center for Drug Evaluation and Research. Beginning as early as July 2006, Liang purchased shares for a profit before 19 positive announcements regarding FDA decisions, shorted stock for a profit before six negative announcements, and sold shares to avoid losses before two negative announcements.

The SEC’s complaint seeks a permanent injunction against future violations, disgorgement of unlawful trading profits and losses avoided plus prejudgment interest, and a financial penalty. The SEC’s complaint names Liang’s wife Yi Zhuge and the account holders for the seven trading accounts he used  as relief defendants.

March 29, 2011 in SEC Action | Permalink | Comments (0) | TrackBack (0)

Monday, March 28, 2011

SEC Charges Stock Promoters with Market Manipulation

The SEC announced that it filed a civil injunctive action against Joseph Catapano ("Catapano") and Michael Piervinanzi ("Piervinanzi"), alleging that they engaged in a fraudulent broker bribery scheme designed to manipulate the market for the common stock of Euro Solar Parks, Inc. ("Euro Solar").  The complaint, filed on March 25, 2011 in federal court in Brooklyn, New York, alleges that beginning in at least February 2011, Catapano and Piervinanzi engaged in an undisclosed kickback arrangement with an individual ("Individual A") who claimed to represent a group of registered representatives with trading discretion over the accounts of wealthy customers. Catapano and Piervinanzi promised to pay a 30% kickback to Individual A and the registered representatives he purported to represent in exchange for the purchase of up to $3 million of Euro Solar stock through the customers' accounts.

The complaint further alleges that from February 16-18, 2011, Catapano instructed Individual A to purchase approximately 130,000 shares of Euro Solar stock for a total of approximately $31,000 through matched trades using detailed instructions concerning the size, price and timing of the purchase orders. Thereafter, Catapano paid Individual A a bribe of $8,800.

The Commission seeks permanent injunctive relief from the Defendants, disgorgement of ill-gotten gains, if any, plus pre-judgment interest, and civil penalties from Catapano and Piervinanzi, and a judgment prohibiting Piervinanzi from participating in any offering of penny stock.

March 28, 2011 in SEC Action | Permalink | Comments (0) | TrackBack (0)

Agencies Announce Consideration of Risk Retention Notice of Proposed Rulemaking

The staffs of the Office of the Comptroller of the Currency, the Federal Reserve, the Federal Deposit Insurance Corporation, the Securities and Exchange Commission, the Federal Housing Finance Agency, and the Department of Housing and Urban Development (together, the agencies) announced that the agencies this week are considering for approval a notice of proposed rulemaking that addresses section 941 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. All of the agencies participating in this joint rulemaking process are expected to consider the rule this week and a detailed announcement will be made when this process is complete. If approved, the agencies will publish in the Federal Register a notice of proposed rulemaking for public comment.

Section 941 requires the agencies to prescribe rules to require that a securitizer retain an economic interest in a material portion of the credit risk for any asset that it transfers, sells, or conveys to a third party. The chairperson of the Financial Stability Oversight Council is tasked with coordinating this rule making effort.

March 28, 2011 in SEC Action | Permalink | Comments (0) | TrackBack (0)

SEC Settles Fraud Charges Against Houston Businessman in Connection with Investment Advisory Firm

On March 25, 2011, the SEC filed suit in U.S. District Court in Houston against Daniel Sholom Frishberg (“Frishberg”), principal of Daniel Frishberg Financial Services (“DFFS”), a Commission-registered investment adviser. The Commission alleges that DFFS, with Frishberg’s approval, advised its clients to invest in notes issued by Kaleta Capital Management (“KCM”), a private company owned by Frishberg associate Albert Fase Kaleta, and by Business Radio Networks, L.P. d/b/a “BizRadio” (“BizRadio”), a struggling media company controlled by Frishberg and Kaleta. According to the complaint, Frishberg authorized Kaleta to offer the notes to clients, but failed to provide clients with critical disclosures. The Commission alleges, for example, that investors were not told of BizRadio’s poor financial condition and likely inability to repay its notes. The Commission further alleges that investors were not told of Frishberg’s significant conflicts of interest in the note offerings, such as the fact that the note proceeds funded BizRadio’s operating expenses, including Frishberg’s and Kaleta’s salaries. 

Without admitting or denying the Commission’s allegations, Frishberg consented to the entry of a permanent injunction against these violations and to pay a $65,000 civil penalty. Frishberg has also consented to the institution of follow-on administrative proceedings that will bar him from association with an investment adviser.

March 28, 2011 in SEC Action | Permalink | Comments (0) | TrackBack (0)


On March 25, 2011, the SEC obtained an emergency asset freeze in a $47 million offering fraud and Ponzi scheme orchestrated by John Scott Clark (Clark) through Impact Cash, LLC and Impact Payment Systems, LLC (collectively Impact), companies owned and controlled by Clark, which operated an online payday loan company. In addition to the asset freeze, the court has appointed a receiver to preserve and marshal assets for the benefit of investors. That Receiver is Gil A. Miller.

The complaint alleges that from March 2006 through September 2010, Impact and Clark (by himself and through sales persons) raised more than $47 million from at least 120 investors for the stated purposes of funding payday loans, purchasing lists of leads for payday loan customers, and paying the operating expenses of Impact. The complaint further alleges that Clark did not deploy investor capital to make payday loans as represented, but instead diverted investor funds to maintain a lavish lifestyle, including buying expensive cars, art and a home theatre system. Clark also misappropriated investor money to fund outside business ventures and used new investor funds to pay purported profits to earlier investors.

The complaint seeks a preliminary and permanent injunction as well as disgorgement, prejudgment interest and civil penalties from Impact and Clark.

March 28, 2011 in SEC Action | Permalink | Comments (0) | TrackBack (0)

SEC Blocks Connecticut Fund Manager's Attempt to Divert Funds From Petters Ponzi Scheme Victims

The SEC announced it obtained an emergency court order to halt an attempt by Marlon M. Quan, a Connecticut-based fund manager, to divert to himself and others settlement funds intended for U.S. victims of a Ponzi scheme operated by Minnesota businessman Thomas Petters.  According to the SEC, Quan facilitated the Petters fraud by funneling several hundred million dollars of investor money into the scheme. The SEC alleges that Quan and his firms (Stewardship Investment Advisors LLC and Acorn Capital Group LLC) invested hedge fund assets with Petters while pocketing more than $90 million in fees. They falsely assured investors that their money would be safeguarded by “lock box accounts” to protect them against defaults. When Petters was unable to make payments on investments held by the funds that Quan managed, Quan and his firms concealed Petters’s defaults from investors by concocting sham round trip transactions with Petters.

In its emergency court action, the SEC alleges that Quan, despite a glaring conflict of interest, more recently negotiated an agreement to divert a settlement payment of approximately $14 million relating to a receivership and a bankruptcy of Petters’s entities. Although he purportedly negotiated on behalf of his U.S. fund investors, Quan’s U.S. victims would receive no money under this agreement.

At the SEC’s request, the Honorable Ann D. Montgomery of the U.S. District Court for the District of Minnesota ordered that the money – paid into a firm affiliated with Quan’s Acorn Capital Group LLC – be placed into a segregated account and frozen until further order of the court. A hearing will be held on April 14 to determine the SEC’s request for additional emergency relief for investors.

The SEC previously charged Petters and Illinois-based fund manager Gregory M. Bell with fraud, and filed additional charges against Florida-based hedge fund managers Bruce F. Prévost and David W. Harrold for facilitating the Petters Ponzi scheme.  According to the SEC’s complaint, Petters sold promissory notes to feeder funds like those controlled by Quan and his firms. The SEC alleges that Quan and his firms funneled money into the Petters Ponzi scheme beginning as early as 2001 and continuing through 2008.

The SEC seeks entry of a court order of permanent injunction against Quan and his firms as well as an order of disgorgement, prejudgment interest and financial penalties. The SEC also seeks equitable relief against relief defendants Florene Quan, wife of Defendant Quan, and Asset Based Resource Group LLC, an affiliate of corn Capital Group LLC.

March 28, 2011 in SEC Action | Permalink | Comments (0) | TrackBack (0)