Securities Law Prof Blog

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

Friday, August 19, 2011

Attorney Gets Three Years for Role in Goffer Insider Trading Ring

A judge sentenced Jason Goldfarb, an attorney who acted as an intermediary in an insider trading scheme, to three years despite Goldfarb's emotional plea for leniency.  Goldfarb transmitted confidential information from two m&a attorneys to convicted hedge fund trader Zvi Goffer for cash.  The judge called Goldfarb an "energetic participant" and before sentencing played a wiretap of Goffer and Goldfarb discussing how much money they would make.  WSJ, Figure in Insider Case Pleads for Leniency, Gets 3 Years

August 19, 2011 in SEC Action | Permalink | Comments (0) | TrackBack (0)

SEC & CFTC Seek Public Comment for Study on Stable Value Contracts

The SEC and CFTC request public comment to assist in conducting a joint study on stable value contracts that is required by Title VII of the Dodd-Frank Act.  That Title, which provides for the comprehensive regulation of swaps and security-based swaps, requires the SEC and CFTC to jointly conduct a study to determine whether stable value contracts fall within the definition of a swap, and if so, whether exempting such contracts from the swap definition is appropriate and in the public interest.

The Dodd-Frank Act calls for the SEC and CFTC to make the determination in consultation with the Department of Labor, the Department of the Treasury, and the state entities that regulate the issuers of stable value contracts.

August 19, 2011 in SEC Action | Permalink | Comments (0) | TrackBack (0)

Thursday, August 18, 2011

Judge Denies Rajaratnam's Motion for Acquittal

In a 48-page opinion(Download USvRajaratnam) reviewing the law and the evidence, the judge in Raj Rajaratnam's insider trading case denied in its entirety his motion to set aside the jury verdict and enter a judgment of acquittal.

August 18, 2011 in Judicial Opinions | Permalink | Comments (0) | TrackBack (0)

SEC Adopts Final Rule on Suspending Duty to File for ABS

The SEC adopted final rules to provide certain thresholds for suspension of the reporting obligations for asset-backed securities issuers, pursuant to Section 942(a) of the Dodd-Frank Act, which eliminated the automatic suspension of the duty to file under Section 15(d) of the Securities Exchange Act of 1934 for asset-backed securities issuers and granted the Commission the authority to issue rules providing for the suspension or termination of such duty.


August 18, 2011 in SEC Action | Permalink | Comments (0) | TrackBack (0)

DOJ Investigating S&P's Credit Rating Process

At least since the Enron/Worldcom scandals, the conflicts of interest involving the credit rating firms have been recognized.  Now it is reported that DOJ has been investigating whether S&P improperly rated mortgage-backed securities prior to the financial collapse.  According to the New York Times, the DOJ is asking whether S&P employees were prevented from downgrading securities by their superiors.

NYTimes, U.S. Inquiry Eyes S.&P. Ratings of Mortgages

August 18, 2011 in News Stories | Permalink | Comments (0) | TrackBack (0)

SEC Employee Says Agency Destroyed Investigative Files

The New York Times and the Wall St. Journal report this morning that an SEC employee charges that the agency improperly destroyed documents relating to closed investigations over the past 20 years.  An agency spokesperson said the SEC changed its retention policies last year.

NYTimes, S.E.C. Files Were Illegally Destroyed, Lawyer Says

WSJ, SEC Accused of Destroying Files

August 18, 2011 in News Stories | Permalink | Comments (0) | TrackBack (0)

Wednesday, August 17, 2011

PCAOB Solicits Public Comment on Auditor Independence & Audit Firm Rotation

On August 16 the Public Company Accounting Oversight Board released a CONCEPT RELEASE ON AUDITOR INDEPENDENCE AND AUDIT FIRM ROTATION.  According to the summary:

The Public Company Accounting Oversight Board ("PCAOB" or "Board") is issuing a concept release to solicit public comment on ways that auditor independence, objectivity and professional skepticism could be enhanced. One possible approach on which the Board is seeking comment is mandatory audit firm rotation, which is explored in detail in this release. However, the Board seeks advice and comment on other approaches as well. The Board will also convene a public roundtable meeting in March 2012, at which interested persons will present their views.
details about the roundtable will be announced at a later date.

Chairman James Doty issued a statement:

There are, of course, considerable implementation challenges associated with mandatory rotation. The concept release invites study and consideration of whether there are ways to mitigate those challenges. But the reason to consider the concept is to resolve the question to which the discussion of independence, skepticism and objectivity always seems to return. That is the central question of this concept release:

will term limits, set at some appropriate length, with due regard for implementation complexities, reduce the pressures auditors face to develop and protect long-term client relationships to the detriment of investors and our capital markets?


August 17, 2011 in Other Regulatory Action | Permalink | Comments (0) | TrackBack (0)

Tuesday, August 16, 2011

Alabama Commissioner Committed Securities Fraud in Accepting Payments from Broker-Dealer

A federal district court in Alabama granted summary judgment in favor of the SEC on its claims that Larry Langford, the former president of the Jefferson County, Alabama Commission, violated the securities laws when he accepted payments from a broker-dealer in connection with the award of County bond and swap business -- a not surprising outcome since the Eleventh Circuit Court of Appeals previously affirmed Langford’s conviction and 15-year prison sentence for the same conduct.

The Court found that Langford had engaged in a scheme to enrich himself by accepting payments from Montgomery-based broker William Blount in exchange for awarding Blount’s firm, business on numerous county bond and swap transactions. The Court found Langford’s conduct egregious.

August 16, 2011 in SEC Action | Permalink | Comments (0) | TrackBack (0)

Second Circuit Agrees with Madoff Trustee on Limiting Recovery of Net Winners

The Second Circuit today affirmed the order of the bankruptcy court in the Madoff liquidation proceeding, which in turn affirmed the decision of the the Trustee, Irving Picard, that investors' "net equity" should be calculated based on the Net Investment Method (amount of cash deposited in account less any withdrawals)and not the Last Statement Method (market value of securities reflected on last customer statement) as a number of "net winners" had argued.

The Court noted that, although both the Trustee and objecting claimants had argued that the plain meaning of the statutory definition supported their position, in fact the statutory language did not prescribe a single means of calculating "net equity" that would apply under all circumstances.  Instead, different fact patterns would call for differing approaches to determine the fairest method of calculating "net equity."  Under the circumstances of this case (i.e. the entirely fictitious nature of Madoff's account statements), the Trustee's approach, approved by SIPC and the SEC, was consistent with the purpose and design of SIPA.  Moreover,

use of the Last Statement Method in this case would have the absurd effect of treating fictitious and arbitrarily assigned paper profits as real and would give legal effect to Madoff's machinations.

In re Bernard L. Madoff Inv. Sec. LLC (2d Cir. Aug. 16, 2011)Download InreMadoff10-2378_opn

August 16, 2011 in Judicial Opinions | Permalink | Comments (0) | TrackBack (0)