April 15, 2011
Former NY Comptroller Sentenced for Pay-to-Play Pension Fund Scheme
Alan Hevesi, former Comptroller of the State of New York, was sentenced to a term of one to four years in prison, the maximum sentence available by law. In October 2010, Hevesi pleaded guilty to a felony charge of receiving reward for official misconduct, for receiving nearly $1 million in gifts in exchange for improperly favoring and approving $250 million in pension fund investments in private equity fund Markstone Capital Partners, L.P.
Today’s sentencing decision was the second stemming from the long-running investigation by the New York Attorney General’s Office into corruption involving the Office of the New York State Comptroller and the state pension fund. Last month, Hevesi’s former political advisor, Henry “Hank” Morris, received the maximum allowable sentence of one to four years in prison after pleading guilty to a Martin Act felony charge for his role in the pay-to-play scandal.
April 14, 2011
SEC CHARGES SUBPRIME AUTO LOAN LENDER AND EXECUTIVES WITH FRAUD
The SEC filed a civil injunctive action today charging Massachusetts-based subprime auto loan provider Inofin Inc. and three company executives with misleading investors about their lending activities and diverting millions of dollars in investor funds for their personal benefit. The SEC also charged two sales agents with illegally offering to sell company securities without being registered with the SEC as broker-dealers.
According to the SEC's complaint, Inofin executives Michael Cuomo, Kevin Mann, and Melissa George illegally raised at least $110 million from hundreds of investors in 25 states and the District of Columbia through the sale of unregistered notes. Investors in the notes were told that Inofin would use the money for the sole purpose of funding subprime auto loans. As part of the pitch, Inofin and its executives told investors that they could expect to receive returns of 9 to 15 percent because Inofin loaned investor money to its subprime borrowers at an average rate of 20 percent. But approximately one-third of investor money raised was instead used by Cuomo and Mann to open four used car dealerships and begin multiple real estate property developments for their own benefit.
Inofin is not registered with the SEC to offer securities to investors. The SEC further alleges that beginning in 2006 and continuing to April 2010, Inofin’s executives defrauded investors while maintaining Inofin’s license to do business as a motor vehicle sales finance company by preparing and submitting materially false financial statements to its licensing authority, the Massachusetts Division of Banks. The SEC’s complaint charges Cuomo, Mann, and George with violating the antifraud and registration provisions of the federal securities laws, and seeks civil injunctions, the return of ill-gotten gains plus prejudgment interest, and financial penalties.
FINRA Fines Jefferies $1.5 Million for Conduct Involving ARS
FINRA announced that it fined Jefferies & Company, Inc. $1.5 million for failing to disclose additional compensation received and conflicts in connection with the sale of auction rate securities (ARS). FINRA also ordered Jefferies to repay $425,000 in fees and commissions earned from the sale of ARS to the affected customers.
FINRA also took action against the three brokers involved in the sale of these products, sanctioning two Jefferies brokers, Anthony Russo ($20,000 fine and five business-day suspension) and Robert D'Addario ($25,000 fine and 10 business-day suspension), and filing a complaint against a third, Richard Morrison, for their role in not disclosing the additional compensation and conflicts. Russo, D'Addario and Morrison comprised the firm's Corporate Cash Management (CCM) group that provided investment advice and services, including purchasing and selling ARS, to 40 Jefferies institutional clients.
According to FINRA, from Aug. 1, 2007, to March 31, 2008, Jefferies — through Russo, D'Addario and Morrison — failed to disclose material facts to a group of eight corporate customers for whom they exercised discretion to purchase and sell ARS. The brokers used their discretion to purchase for these customers new-issue ARS that paid them and the firm additional compensation. By exercising discretion, Jefferies and the brokers were obligated to disclose that they received this additional compensation, and that they could have purchased other comparable or similar ARS with higher yields. In 32 other transactions, they used their discretion to purchase ARS for the customers from other CCM group customers, but failed to disclose the conflict created because they acted as agent for both the buying and selling customer. They also failed to disclose the existence of comparable or similar ARS with higher yields.
In reaching the settlement, FINRA took into account that in December 2008, Jefferies spent approximately $68 million in a partial voluntary buyback of ARS held in retail accounts. As part of the settlement announced today, which included findings relating to Jefferies' ARS advertising and inadequate supervisory review of ARS advertising, Jefferies agreed to purchase ARS from additional retail accounts. Also, in July 2008, Jefferies began remitting all trailing commissions received for frozen ARS held in customer accounts directly to its customers on a go-forward basis, and as of October 2010, had remitted in excess of $868,000.
As part of the settlement, Jefferies also agreed to participate in a special FINRA-administered arbitration program to resolve eligible investor claims for consequential damages.
April 13, 2011
COURT ENTERS SUMMARY JUDGMENT AGAINST RECIDIVIST MAYER AMSEL AND HIS BROTHER DAVID AMSEL IN MARKET MANIPULATION CASE
On March 22, 2011, the United States District Court for the Eastern District of New York entered summary judgment in favor of the Commission on most of its claims against Mayer Amsel and his brother, David Amsel in a market manipulation case involving the securities of East Delta Resources Corp. Mayer Amsel is a securities fraud recidivist. Securities and Exchange Commission v. East Delta Resources Corp., Victor Sun, David Amsel and Mayer Amsel, Civil No. CV10-0310 (E.D.N.Y.)
The Commission’s motion for summary judgment argued that from 2004 through at least 2006, the Amsels, in concert with several others and through their individual actions, artificially inflated the volume of market activity for, and in turn the price of, East Delta stock, and illegally sold East Delta shares that they received at little or no cost. The Commission’s summary judgment motion further argued that the Amsels together collected illegal profits of $1,322,703 from their manipulative conduct.
The opinion reserved judgment on the issue of the Amsels’ liability for violations of Sections 5(a) and 5(c) of the Securities Act (together, Section 5), the question of whether to impose an officer and director bar against David Amsel, and what the appropriate judgment amount should be with respect to disgorgement, civil penalties, and prejudgment interest. Subsequently, the court entered a default judgment against David Amsel that permanently enjoined him from violating Section 5 of the Securities Act after he failed to appear at a bench trial that was held in the case on March 28, 2011.
The latest judgments against the Amsel brothers follow others entered in the same case within the past seven months against East Delta and its former CEO, Victor Sun. On September 22, 2010 and October 13, 2010, the court entered final judgments against East Delta and Sun, respectively. Both defendants settled with the Commission without admitting or denying the allegations against them.
A decision on Mayer Amsel’s Section 5 liability is still pending following the March 28, 2011 trial. A ruling on the officer and director bar against David Amsel and the monetary remedies sought by the Commission is expected after further briefing.
FINRA Delays Effective Date for Suitability and Know Your Customer Rules
FINRA filed with the SEC a proposed rule change to delay the implementation date for FINRA Rule 2090 (Know Your Customer) and FINRA Rule 2111 (Suitability), as approved in SR-FINRA-2010-039, until July 9, 2012 (from Oct. 7, 2011). FINRA designated the proposed rule change as constituting a “non-controversial” rule change which renders the proposal effective upon filing. The SEC published a notice to solicit comments from interested persons.
According to FINRA, numerous firms requested that the approved rules’ implementation date be delayed to allow firms additional time to determine the types of systems and procedural changes they need to make, implement those changes, and educate associated persons and supervisors regarding compliance with the rules.
SEC Charges Former Hedge Fund Portfolio Manager with Insider Trading in Drug Trials Information
The Securities and Exchange Commission today charged a former hedge fund portfolio manager with insider trading in a bio-pharmaceutical company based on confidential information about negative results of the company’s clinical drug trial. The SEC alleges that Dr. Joseph F. “Chip” Skowron, a former portfolio manager for six health care-related hedge funds affiliated with FrontPoint Partners LLC, sold hedge fund holdings of Human Genome Sciences Inc. (HGSI) based on a tip he received unlawfully from a medical researcher overseeing the drug trial. HGSI’s stock fell 44 percent after it publicly announced negative results from the trial of Albumin Interferon Alfa 2-a (Albuferon), and the hedge funds avoided at least $30 million in losses. In a parallel action today, the U.S. Attorney’s Office for the Southern District of New York announced criminal charges against Skowron.
Simultaneous with the filing of the SEC’s complaint, the six hedge funds named as relief defendants agreed to settle with the Commission and pay disgorgement of $29,017,156.00 plus prejudgment interest of $4,003,669.00 without admitting or denying the allegations. The proposed settlement is subject to court approval.
The SEC previously charged the medical researcher – Dr. Yves M. Benhamou – who illegally tipped Skowron with the non-public information. According to the SEC, Benhamou served on the Steering Committee overseeing HGSI’s trial for Albuferon, a potential drug to treat Hepatitis C. While serving on the Steering Committee, Benhamou provided consulting services to Skowron through an expert networking firm. But over time, he and Skowron developed a friendship. By April 2007, many of their communications were independent of the expert networking firm. Benhamou tipped Skowron with material, non-public information about the trial as he learned of negative developments that occurred during Phase 3 of the trial.
According to the SEC’s amended complaint, Skowron gave Benhamou an envelope of containing 5,000 Euros while they were attending a medical conference in Barcelona, Spain in April 2007. The cash was in appreciation for Benhamou’s work as a consultant. In February 2008, after the illegal HGSI trades were completed, Skowron asked Benhamou to lie about his communications with Skowron, which he did. In late February 2008, Skowron met Benhamou in Boston and attempted to hand him a bag containing cash in appreciation for his tips on the Albuferon trial and his continued silence. Benhamou refused the cash. However, while attending a medical conference in Milan, Italy in April 2008, Skowron gave Benhamou another envelope containing $10,000 to $20,000 in cash that Benhamou accepted.
The six hedge funds are FrontPoint Healthcare Flagship Fund, L.P., FrontPoint Healthcare Horizons Fund, L.P., FrontPoint Healthcare I Fund, L.P., FrontPoint Healthcare Flagship Enhanced Fund, L.P., FrontPoint Healthcare Long Horizons Fund, L.P., and FrontPoint Healthcare Centennial Fund, L.P.
Securities America Settlement -- On or Off?
Yesterday it was reported that enough investors had accepted the $180 million settlement offer by Securities America and its parent Ameriprise to make it happen. The settlement involves claims of investors who purchased private placements in Medical Capital and Provident Royalties that have been filed in arbitration and in a federal class action. Investors would receive approximately 45 cents on the dollar, up from the 10 cents offered in a previous settlement that a federal district court judge in Dallas refused to approve. Dealbook (Susanne Craig), Securities America Said to Reach $180 Million Settlement.
However, Investment News reports that the deal is still iffy -- specifically, if investors who collectively have $5 million in arbitration claims do not accept the terms. It is also subject to court approval. Securities America deal poised on a knife's edge
SEC Approves FINRA Arb Rule Providing Time Period to Reply to Responses to Motions
On April 12, 2011 the SEC approved a FINRA proposed rule change to amend the Code of Arbitration Procedure (for both Customer and Industry Disputes) to provide moving parties with a five-day period to reply to responses to motions. The proposed rule change was published for comment in the Federal Register on February 22, 2011. The relatively uncontroversial proposal received only three comments.
GAO Releases Report on Fed's Role in Financial Literacy
Financial Literacy: The Federal Government's Role in Empowering Americans to Make Sound Financial Choices (GAO-11-504T April 12, 2011)(Download GAOFinanLiteracyd11504t):
Federal financial literacy efforts are spread among more than 20 different agencies and more than 50 different programs and initiatives, raising concerns about fragmentation and potential duplication of effort. The multiagency Financial Literacy and Education Commission, which coordinates federal efforts, has acted on recommendations GAO made in 2006 related to public-private partnerships, studies of duplication and effectiveness, and the Commission's MyMoney.gov Web site. While GAO's 2006 review of the Commission's initial national strategy for financial literacy found that it was a useful first step in focusing attention on financial literacy, it was largely descriptive rather than strategic. The Commission recently released a new strategy for 2011, which laid out clear goals and objectives, but it still needs to incorporate specific provisions for performance measures, resource needs, and roles and responsibilities, all of which GAO believes to be essential for an effective strategy. However, the Commission will be issuing an implementation plan to accompany the strategy later this year and the strategy will benefit if the plan incorporates these elements. The new Bureau of Consumer Financial Protection will also have a role in financial literacy, further underscoring the need for coordination among federal entities. Coordination and partnership among federal, state, nonprofit, and private sectors is also essential in addressing financial literacy, and there have been some positive developments in fostering such partnerships in recent years. There is little definitive evidence available on what specific programs and approaches are most effective in improving financial literacy, and relatively few rigorous studies have measured the impact of specific financial literacy programs on consumer behavior. Given that federal agencies have limited resources for financial literacy, it is important that these resources be focused on initiatives that are effective. To this end, the Commission's new national strategy on financial education sets as one of its four goals identifying, enhancing, and sharing effective practices. However, financial education is not the only approach for improving consumers' financial behavior. Several other mechanisms and strategies have also been shown to be effective, including financial incentives or changes in the default option, such as automatic enrollment in employer retirement plans. The most effective approach may involve a mix of financial education and these other strategies. GAO will continue to play a role in supporting and facilitating knowledge transfer on financial literacy. GAO will host a forum on financial literacy later this year to bring together experts from federal and state agencies and nonprofit, educational, and private sector organizations. The forum will address gaps, challenges, and opportunities related to federal financial literacy efforts. In addition, as part of GAO's audit and oversight function, GAO will continue to evaluate the effectiveness of federal financial literacy programs, as well as identify opportunities to improve the efficient and cost-effective use of these resources.
April 12, 2011
Schapiro Testifies on Derivatives Regulation
SEC Chairman Mary L. Schapiro testified on “Building the New Derivatives Regulatory Framework: Oversight of Title VII of the Dodd-Frank Act” before the United States Senate Committee on Banking, Housing, and Urban Affairs on April 12, 2011.
CFTC & SEC Schedule Roundtable on Implementing Rules on Swaps
The staffs of the CFTC and the SEC announced that they intend to hold a two-day joint public roundtable on May 2-3, 2011, to discuss the schedule for implementing final rules for swaps and security-based swaps under the Dodd-Frank Act.
The Dodd-Frank Act gives the CFTC and SEC certain flexibility to set effective dates and a schedule for compliance with rules implementing Title VII of the Act, which involves oversight of swaps and security-based swaps, so that market participants have time to develop the policies, procedures, systems and processes needed to comply with the new regulatory requirements. According to the release, public comments on Title VII have helped inform the Commissions as to what requirements can be met sooner and which ones will take more time. The roundtable is intended to supplement the comments received to date and help inform the Commissions as they proceed with rulemaking. The order in which the Commissions finalize the rules need not determine the order in which the rules become effective or the applicable compliance dates.
The roundtable will provide the public with the opportunity to comment on whether to phase implementation of the new requirements based on factors such as: the type of swap or security-based swap, including by asset class; the type of market participants that engage in such trades; the speed with which market infrastructures can meet the new requirements; and whether registered market infrastructures or participants might be required to have policies and procedures in place ahead of compliance with such policies and procedures by non-registrants.
The roundtable is expected to include panel discussions of (1) compliance dates for new rules for existing trading platforms and clearinghouses and the registration and compliance with rules for new platforms, such as swap and security-based swap execution facilities, and data repositories for swaps and security-based swaps; (2) compliance dates for new requirements for dealers and major participants in swaps and security-based swaps; (3) implementation of clearing mandates; (4) compliance dates for financial entities such as hedge funds, asset managers, insurance companies and pension funds subject to a clearing mandate and other requirements; and (5) considerations with regard to non-financial end users.
FINRA Arb Panel Orders Citigroup to Pay $51 Million to Investors in Municipal Bond Hedge Funds
A FINRA arbitration panel issued an award ordering Citigroup to pay more than $51 million (including $17 million in punitive damages) to a group of investors in its MAT and ASTA municipal bond hedge funds. It is reportedly the third largest award at FINRA since 1988. Citigroup previously disclosed that the SEC is conducting an inquiry as to whether brokers misled investors about the risks involved with these funds. Inv News, Finra orders Citigroup to pay $51M to muni-fund investors
FINRA Fines Santander Securities $2 Million for Deficiencies in Structured Product Business
FINRA announced that it fined Santander Securities of Puerto Rico $2 million for deficiencies in its structured product business, including unsuitable sales of reverse convertible securities to retail customers, inadequate supervision of sales of structured products, inadequate supervision of accounts funded with loans from its affiliated bank, and other violations related to the offering and sale of structured products. In addition to paying the fine, the firm is required to review its training, supervision and written procedures in the relevant areas. Santander Securities has reimbursed more than $7 million to its customers for losses that resulted from reverse convertible securities.
According to FINRA, despite Santander Securities' growing sales in structured products, between September 2007 and September 2008, brokers bore the responsibility of evaluating the products without sufficient suitability guidance or required training on structured products. The firm also had no process in place for reviewing or approving any particular structured product prior to offering the product to a customer. Moreover, the firm did not have effective procedures in place to monitor customer accounts for potentially unsuitable purchases of structured products and had no suitability policies governing product concentration. As a result, the firm failed to detect certain accounts with concentrated positions in certain risky structured products, specifically reverse convertibles. This led to unsuitable recommendations of structured products and significant losses by customers.
For example, in November 2007, Santander Securities recommended that a retired couple in their 80s, with a moderate risk tolerance and a long-term growth objective, invest in a single reverse convertible position of over $100,000, which represented 85 percent of their account value and more than half of their liquid net worth. The investment ultimately resulted in a loss of over $88,000. Moreover, some Santander Securities brokers recommended that customers use funds borrowed from the firm's banking affiliate to purchase reverse convertibles, claiming that it would enable the customers to capture the spread between the interest they paid to the bank and the higher coupon rate they received from the reverse convertible. However, these recommendations substantially increased the clients' exposures to risk.
In concluding this settlement, Santander Securities neither admitted nor denied the charges, but consented to the entry of FINRA's findings.
April 11, 2011
SEC CHARGES FORMER CFO OF INVESTMENT ADVISER WITH AIDING AND ABETTING FRAUD IN CONNECTION WITH UNAUTHORIZED TRANSFERS OF MORE THAN $870 MILLION IN CLIENT FUNDS
On April 8, 2011, the SEC filed a complaint against Perry A. Gruss ("Gruss"), the former chief financial officer of D.B. Zwirn & Co., L.P. ("DBZCO"), alleging aiding and abetting fraud in connection with the improper transfer of client cash, both between client funds and from client funds to DBZCO and third parties. DBZCO, now defunct, was an investment adviser that, at various times during the period 2002 through 2009, managed five hedge funds including the D.B. Zwirn Special Opportunities Fund, Ltd. (the "Offshore Fund") and D.B. Zwirn Special Opportunities Fund, L.P. (the "Onshore Fund"), along with several managed accounts. The Offshore Fund and the Onshore Fund were separate entities with largely distinct pools of investors.
According to the Commission's complaint, during the period March 2004 through July 2006, Gruss knowingly misused the signatory and approval authority he had over funds held in client accounts and directed and/or authorized more than $870 million in improper transfers of client cash, both between client funds and from client funds to DBZCO and third parties. The complaint alleges that the improper transfers directed and/or approved by Gruss included: (i) $576 million in transfers between March 2004 and July 2006 from the Offshore Fund to the Onshore Fund or directly to third parties to fund Onshore Fund investments; (ii) $273 million in transfers between June 2005 and May 2006 from the Offshore Fund to repay a revolving credit facility of the Onshore Fund; (iii) $22 million in transfers from client accounts between May 2004 and March 2006 to pay management fees to DBZCO before due and payable in order to cover DBZCO's operating cash shortfalls; and (iv) a total of $3.8 million taken from the Onshore Fund and a managed account in September 2005 to fund a portion of the $17.95 million purchase price of a Gulfstream IV aircraft purchased by DBZCO's managing partner. The complaint further alleges that the improper transfers were not permitted by the offering documents or the management agreements, were not disclosed to clients or documented as loans, and no interest was paid to clients for the unauthorized use of their funds at the time. Facing termination, Gruss resigned in October 2006, when at least $108 million of the unauthorized transfers remained outstanding. All of the money improperly transferred was eventually repaid with interest, but only after an internal investigation.
The SEC seeks a permanent injunction, disgorgement of any ill-gotten gains plus prejudgment interest and monetary penalties.
SEC Suspends Trading in RINO
This morning the SEC announced the temporary suspension of trading in the securities of RINO International Corporation (“RINO”), a Nevada corporation with headquarters and operations in the People’s Republic of China, terminating at 11:59 p.m. EDT on April 25, 2011. According to the SEC:
It appears that there is a lack of current and accurate information concerning the securities of RINO International Corporation, because the company has failed to disclose that: (i) the outside law firm and forensic accountants hired by the audit committee to investigate allegations of financial fraud at the company resigned on or about March 31, 2011, after reporting the results of their investigation to management and the board;
(ii) the chairman of the audit committee resigned on March 31, 2011; and (iii) the company’s remaining independent directors have also resigned. Further, questions have arisen regarding, among other things: (i) the size of the company’s operations and number of employees; (ii) the existence of certain material customer contracts; and (iii) the existence of two separate and materially different sets of corporate books and accounts.
RINO is one of the "Chinese issuers" that have done IPOs or reverse mergers recently to enter the U.S. markets.
Madoff, in Jail-House Interview, Blames Investors
ProPublica runs a story, Madoff Calls Big Investors ‘Complicit’ in Jailhouse Interview. Specifically, Madoff names Jeffry Picower, Stanley Chais, Carl Shapiro and Norman Levy, his four largest investors.
NASDAQ, ICE Respond to NYSE's Rejection of Their Proposal
Yesterday NASDAQ OMX and IntercontinentalExchange issued the following statement in response to the rejection by NYSE Euronext (NYX) of their joint proposal to acquire NYSE Euronext, valued at $43.13 per share in cash and stock, as of the close of trading on Friday, April 8, 2011:
NYSE Euronext's Board of Directors, without engaging in any dialogue or discussion, has summarily elected to deny its stockholders the opportunity to benefit from a clearly superior proposal to the announced transaction with Deutsche Boerse, a proposed transaction that is indisputably financially inferior.
This NASDAQ OMX/ICE transaction would create two global leading exchanges, one primarily focused on cash equities and the other on derivatives. This reduces execution risk and allows investors to make their own allocation decisions.
The superior cash and stock proposal from NASDAQ OMX and ICE provides NYSE Euronext's stockholders with immediate value and a higher premium to the proposal from Deutsche Boerse.
There is greater potential for long-term value creation under the NASDAQ OMX/ICE proposal by placing NYSE Euronext's businesses under management teams with proven track records of unlocking value through successful merger integrations.
Best of breed management of NASADQ OMX and ICE would create two focused alternatives in cash equities and derivatives with less management risk than the conglomerate proposed by NYSE Euronext/Deutsche Boerse.
There are significant execution and integration risks to stockholders with the proposed NYSE Euronext/Deutsche Boerse transaction, given that both managements have histories of failing to achieve promised objectives in previous cross-border merger integrations and the transaction faces European competition hurdles.
NASDAQ OMX and ICE are committed to a prudent use of leverage to finance the transaction. In particular, NASDAQ OMX is focused on maintaining its investment-grade credit rating.
* * *
NASDAQ OMX and ICE reaffirmed their interest in acquiring NYSE Euronext given the benefits to stockholders of all three companies. The NASDAQ OMX/ICE proposal provides NYSE Euronext stockholders with exposure to two focused players in equities and derivative exchanges, while the Deutsche Boerse proposal offers exposure to a single diversified exchange that may receive a conglomerate discount. The NASDAQ OMX/ICE proposal also offers a strategically attractive alternative with stronger potential upside in two best-in-class operators given the superior growth prospects and significant, realizable combined synergies of $740 million annually. NYSE Euronext and Deutsche Boerse, by comparison, have both taken significant write-downs on previous cross-border transactions they have engineered.
FINRA Fines UBS Financial $2.5 Million and Orders $8.25 Million in Restitution for Sales of Lehman PPNs
FINRA announced that it fined UBS Financial Services, Inc., $2.5 million, and required UBS to pay $8.25 million in restitution for omissions and statements made that effectively misled investors regarding the "principal protection" feature of 100% Principal-Protection Notes (PPNs) Lehman Brothers Holdings Inc. issued prior to its September 2008 bankruptcy filing. PPNs are fixed-income security structured products with a bond and an option component that promise a minimum return equal to the investor's initial investment.
From March to June 2008 as the credit crisis worsened, UBS advertised, and some UBS financial advisors described, the structured notes as principal-protected investments and failed to emphasize they were unsecured obligations of Lehman Brothers, which eventually filed for bankruptcy in September 2008. FINRA found that UBS:
- failed to emphasize adequately to some investors that the principal protection feature of the Lehman-issued PPNs was subject to issuer credit risk;
- did not properly advise UBS financial advisors of the potential effect of the widening of credit default swap spreads on Lehman's financial strength, or provide them with proper guidance on the use of that information with clients;
- failed to establish an adequate supervisory system for the sale of the Lehman-issued PPNs, and failed to provide sufficient training and written supervisory policies and procedures;
- did not adequately analyze the suitability of sales of the Lehman-issued PPNs to certain UBS customers;
- created and used advertising materials that had the effect of misleading some customers about specific characteristics of PPNs.
In settling this matter, UBS neither admitted nor denied the charges, but consented to the entry of FINRA's findings.
April 10, 2011
Raj Rajaratnam Trial: Prosecution Rests in Week 5
The prosecution completed its case on Wednesday. The testimony this week consisted of more taped phone conversations, this time between Raj Rajaratnam and Danielle Chiesi, the former hedge fund trader who pleaded guilty to securities fraud earlier this year, involving Akamai Technologies. On Tuesday and Wednesday, a FBI agent walked the jury through the trades and testified that RR's profits and avoided losses totalled $63.8 million. In all, the government introduced 18 witnesses and 45 tapes of telephone conversations in their case. For a good summary of the government's case, see Peter Lattman, Prosecution Rests Its Case in Galleon Trial
The defense begins to present its version of events on Monday. On April 8, the parties were in court arguing whether University of Rochester business professor (and former SEC chief economist) Gregg A. Jarrell could testify that publicly available information could explain Galleon's investment decisions. In the view of the prosecution, this would infringe on the jury's right to determine materiality. The judge ruled he could testify with some restrictions. For a good preview of the defense's straegy, see WSJ, Defense Offers Glimpse of Strategy.
NYSE Board Reaffirms Deutsche Boerse Deal and Rejects Nasdaq Bid
NYSE Euronext announced today that its Board of Directors unanimously reaffirmed the combination agreement with Deutsche Boerse AG and rejected the "unsolicited and highly conditional" proposal by NASDAQ OMX Group, Inc. and IntercontinentalExchange, Inc. to break up NYSE Euronext. The release stated:
The NYSE Euronext/Deutsche Boerse combination is consistent with the long-term strategy adopted by the NYSE Euronext Board of Directors in 2009, a strategy that the company has regularly reaffirmed and been successfully executing. The combination with Deutsche Boerse will position the combined company to be the leading global exchange operator and create substantially more long-term value for shareholders, and is significantly more likely to close.
Speaking on behalf of the Board, NYSE Euronext Chairman Jan-Michiel Hessels said:
“Breaking up NYSE Euronext, burdening the pieces with high levels of debt, and destroying its invaluable human capital, would be a strategic mistake in terms of where the global markets are going, and is clearly not in the best interests of our shareholders. The highly conditional break-up proposal from Nasdaq/ICE would also require shareholders to shoulder unacceptable execution risk.
“We are confident that the combination with Deutsche Boerse will create compelling value for our shareholders. With Deutsche Boerse, we are committed to creating the world’s premier exchange group – a geographically diverse business, with strengths in multiple asset classes across the spectrum of capital markets services. The new company will fundamentally change the global exchange industry, establishing a world leader in both derivatives and risk management and the premier global venue for capital-raising.“