Securities Law Prof Blog

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

Tuesday, June 30, 2009

SEC Brings Action Alleging Sales of Fraudulent and Unsuitable Variable Annuities Through Free-Lunch Seminars

The SEC today instituted an enforcement action against Prime Capital Services (PCS), a Poughkeepsie, N.Y.-based firm, and several representatives and supervisors for their alleged roles in fraudulent and unsuitable sales of variable annuities to senior citizens who were lured through free-lunch seminars at restaurants in south Florida.  The SEC alleges that PCS recruited elderly investors to attend the seminars, after which the seniors were encouraged to schedule private appointments with PCS representatives who then induced them to buy variable annuities. The sales pitches allegedly concealed high costs, lock-in periods, and other material information. While the firm and its representatives earned millions of dollars in sales commissions, the Division alleges that many of the variable annuities were unsuitable investments for the customers due to their age, liquidity, and investment objectives.

According to the SEC's order instituting proceedings, PCS is a registered broker-dealer and wholly-owned subsidiary of Gilman Ciocia, Inc. (G&C), an income tax preparation business headquartered in Poughkeepsie that offers financial services in New York, New Jersey, Pennsylvania and Florida. The individuals named in the SEC's order were G&C employees during the time of the alleged misconduct.

An administrative law judge will determine whether the allegations against the respondents are true and, if so, whether they should be ordered to cease and desist from future violations and whether remedial sanctions and penalties are appropriate and in the public interest.

June 30, 2009 in SEC Action | Permalink | Comments (0) | TrackBack (0)

Merkin's Art Collection to be Sold and Funds Placed in Escrow Pending Resolution of New York AG's Suit


"Earlier this morning in New York State Supreme Court, my Office submitted a stipulation and order regarding the impending sale of J. Ezra Merkin's art collection for $310 million. The art was owned by Mr. Merkin and his wife. This sale will yield, after liens, taxes, and fees, approximately $191 million that will be restrained and frozen in an escrow account pending resolution of the case against Mr. Merkin. This will preserve assets that, if our litigation is successful, will provide restitution to victims of Mr. Merkin's alleged fraud.

The art sale order submitted today was the product of weeks of extensive negotiation. Based on an appraisal performed by Christie's at the request of my Office, we believe the sale price of $310 million is fair, appropriate, and in the best interests of investors. I want to thank Christie's for their work on this matter.

We believe it is only fair that Mr. Merkin liquidate his valuable art collection, which he purchased with the fees he earned from his investors, and keep the proceeds in escrow pending resolution of our lawsuit. The $191 million that will be preserved in this way will not by itself make investors whole, but this is an important step in the right direction for investors.

We will continue to seek full recovery for investors' losses through the ongoing action against Mr. Merkin, which charges him with concealing from his clients the investment of more than $2.4 billion with Bernard L. Madoff. As detailed in the 54-page complaint we previously filed, investors, including several prominent charities and non-profits, entrusted their investments to Mr. Merkin, who then steered the money to Madoff without their permission, in exchange for $470 million in management and incentive fees."

June 30, 2009 in Other Regulatory Action | Permalink | Comments (0) | TrackBack (0)

FINRA Fines Firm and Former Broker for Improper Communications with Interdealer Brokerage Firms

FINRA announced that it has fined ICAP Corporates LLC, of Jersey City, $2.8 million and sanctioned a former broker for numerous improper communications with other interdealer brokerage firms about customers' proposed brokerage rate reductions in the wholesale credit default swap (CDS) market. 

Jennifer Joan James, a former ICAP broker and manager of ICAP's CDS desk, was fined $350,000 and suspended from working in the securities industry in all capacities for six months for attempting to improperly influence other interdealer brokerage firms and their employees. ICAP was fined $1.8 million for its supervisory failures — specifically, failing to detect and prevent improper inter-firm communications — and $1 million for engaging in conduct through its CDS desk manager that was designed to improperly influence other firms and their employees. 

CDS instruments generally enable counterparties to purchase and sell "risk protection" associated with certain credit events (such as bankruptcies, defaults or credit downgrades in underlying instruments). The risk protection purchaser generally pays a periodic fee to the seller, and the seller agrees to pay the purchaser an agreed-upon amount should one of those credit events occur. Interdealer brokerage firms provide an intermediary brokerage service to commercial and investment banks in the wholesale markets to identify and match counterparties for such CDS transactions. The firm receives brokerage fees for successfully introducing buying and selling counterparties (its brokerage customers) but is not a party to the CDS transactions themselves.

 FINRA found that James engaged in repeated improper communications with personnel at other interdealer brokerage firms that improperly attempted to influence those firms and individuals. These communications generally occurred after individual customer firms sought to renegotiate their CDS brokerage fees, sending schedules of proposed rate reductions separately to a number of individual interdealer brokers. James's communications with personnel at other interdealer brokers included reactions to customers' proposed rate reductions, statements concerning actual or contemplated interdealer broker responses or counter-positions to the customers' proposed rate reductions, and discussions about the interdealer brokers creating identical or similar, individual counter proposals to rate reduction requests.

 FINRA also found that while James's communications typically involved one-to-one discussions with personnel from one other CDS interdealer brokerage firm, the communications frequently referred to similar discussions about the proposed fee-reduction schedules with additional interdealer brokerage firms.

ICAP and James settled these matters without admitting or denying the allegations, but consented to the entry of FINRA's findings.

FINRA's investigation into misconduct by the other interdealer brokerage firms and individuals involved is continuing.

June 30, 2009 in Other Regulatory Action | Permalink | Comments (0) | TrackBack (0)

FINRA Announces Initiatives Involving Municipal Securities

Concerns have been expressed that municipal securities would be the next big headline fraud, as retail investors engage in the perennial search for safety with higher returns than CDs.  Today FINRA announced initiatives to survey retail sales practices in the municipal securities market, promote investor protection in that market and give retail investors online tools and information that will help them make informed investment decisions when trading in that market.

FINRA investigators currently are conducting sweeps to gather information in three distinct areas. One broad sweep is looking at industry sales and supervisory practices with respect to sales of municipal bonds to retail investors. Firms are being asked to provide FINRA with detailed data on a range of retail muni bond transactions during the first quarter of this year. The requested information includes sales data, marketing data, pricing data and procedures, disclosure practices, customer complaints and supervisory procedures and practices.

 A second, more targeted sweep is examining potential conflicts, disclosure practices and marketing by firms underwriting municipal securities involving swaps and derivatives for small municipalities. These highly complex instruments typically allow municipalities to finance debt with lower variable interest rates than they would receive through a fixed offering, but involve significant interest rate and repayment acceleration risks through the swap contracts - something that has recently caused much-publicized financial distress for municipalities such as Jefferson County, AL, and the Erie, PA, School District. A third, narrowly targeted sweep is seeking information from firms that engaged in retail sales of certain so-called municipal Gas Bonds that were underwritten and guaranteed by the now-defunct Lehman Brothers and quickly became distressed.

 Also as part of its municipal bond initiative, FINRA today issued a Regulatory Notice to securities firms and brokers reminding them of their ongoing obligation to disclose material information to customers - including changes in the financial condition of the issuing municipality - as well as their obligations regarding suitability of recommendations to customers and supervision of the firm's municipal securities activities. At the same time, to help the investing public better understand and mitigate the risks of investing in municipal bonds, FINRA today issued an Investor Alert called Municipal Bonds — Staying on the Safe Side of the Street in Rough Times, as well as an online Muni Bond Check List, which provides a step-by-step guide to help investors avoid the most common pitfalls of muni bond investing.

June 30, 2009 in Other Regulatory Action | Permalink | Comments (0) | TrackBack (0)

Monday, June 29, 2009

FINRA Files Proposed Changes to Arbitration Code

FINRA has filed with the SEC a proposed rule change to amend Rules 12100(r), 12506(a), and 12902(a) of the Code of Arbitration Procedure for Customer Disputes (“Customer Code”) and Rule 13100(r) of the Code of Arbitration Procedure for Industry Disputes (“Industry Code”) to amend the definition of “associated person,” streamline a case administration procedure, and clarify that customers could be assessed hearing session fees based on their own claims for relief in connection with an industry claim.  According to the accompanying releases, these amendments are necessitated by inadvertent deletions of language from the previous Code. 

Comments are due 21 days after publication in the Federal Register.

June 29, 2009 in Securities Arbitration | Permalink | Comments (0) | TrackBack (0)

Supreme Court Upholds Power of State Banking Regulators to Enforce State Law

In an important case for state regulators, the Supreme Court held (5-4), in Cuomo v.Clearing House, that the federal Comptroller of the Currency’s regulation under the National Bank Act purporting to pre-empt state law enforcement is not a reasonable interpretation of the NBA.  This case arose out of an investigation initiated in 2005 by the New York Attorney General to determine whether various national banks had violated New York’s fair-lending laws.  The AG sent the banks letters requesting “in lieu of subpoena” that they provide certain nonpublic information about their lending practices. Both the Comptroller or OCC and a banking trade group brought this action to enjoin the information request, claiming that the Comptroller’s regulation prohibits that form of state law enforcement against national banks. The lower courts agreed with the Comptroller and issued an injunction prohibiting the AG from enforcing the state fair-lending laws through demands for records or judicial proceedings.  A majority of the Justices, however, affirmed the injunction as applied to the AG's threatened issuance of executive subpoenas, but vacated it as it prohibits the AG from bringing judicial enforcement actions. 

The relevant provision of the NBA provides: “No national bank shall be subject to any visitorial powers except as authorized by Federal law, vested in the courts . . . , or . . . directed by Congress.” Among other things, the Comptroller’s implementing regulation forbids States to “exercise visitorial powers with respect to national banks, such as conducting examinations, inspecting or requiring the production of books or records,” or (the language at issue here) “prosecuting enforcement actions” “except in limited circumstances authorized by federal law.” 

The majority noted the ambiguity in the NBA’s term “visitorial powers” and recognized that, under Chevron, the Comptroller can give authoritative meaning to the term within the bounds of that uncertainty. However, the majority stated, "the presence of some uncertainty does not expand Chevron deference to cover virtually any interpretation of the NBA."  The Court goes on to find that evidence from the time of NBA's enactment, the Court's precedents, and ordinary principles of construction make clear that the NBA does not prohibit ordinary enforcement of state law.

Moreover, the Court noted that the regulation’s consequences also cast its validity into doubt.  Even the OCC acknowledges that the NBA leaves in place some state substantive laws affecting banks, yet the Comptroller’s rule says that the State may not enforce its valid, non-pre-empted laws against national banks. “To demonstrate the binding quality of a statute but deny the power of enforcement involves a fallacy made apparent by the mere statement of the proposition, for such power is essentially inherent in the very conception of law.” ... In contrast, channeling state attorneys general into judicial law-enforcement proceedings (rather than allowing them to exercise “visitorial” oversight) would preserve a regime of exclusive administrative oversight by the Comptroller while honoring in fact rather than merely in theory Congress’s decision not to pre-empt substantive state law.

SCALIA, J., delivered the opinion of the Court, in which STEVENS, SOUTER, GINSBURG, and BREYER, JJ., joined. THOMAS, J., filed an opinion concurring in part and dissenting in part, in which ROBERTS, C. J., and KENNEDY and ALITO, JJ., joined.

June 29, 2009 in Judicial Opinions | Permalink | Comments (0) | TrackBack (0)

Madoff Sentenced to 150 Years

Federal District Court Judge Denny Chin threw the book at Bernie Madoff today, imposing the maximum sentence of 150 years, exactly what the prosecutors asked for and what Madoff's defense attorney called as "defying reason" (he suggested 12 years).  The judge said that symbolism is important and "a message must be sent that Mr. Madoff's crimes were extraordinarily evil."  The judge also noted the long duration of the fraud.

During what all reports describe as an emotional hearing nine victims were permitted to make statements, after which Madoff made a statement.  Turning to face the people in the courtroom, he apologized and denied that he and his wife Ruth were not sympathetic to the victims:  "she cries herself to sleep every night."  (Ruth Madoff, who was not in the courtroom, released a statement that, like the victims, she felt betrayed and confused.  Ruth Madoff has reached a settlement with the SEC that will allow her to keep $2.5 million, at least until other regulators or victims seek to recover it.)

Judge Chin also observed that he sensed that Madoff has not been as cooperative as he could be (a complaint that the prosecutors and SIPC have made) and that no one had submitted letters on behalf of Madoff.

NYTimes, Madoff Is Sentenced to 150 Years for Ponzi Scheme

WSJ, Madoff Is Sentenced to 150 Years in Multibillion-Dollar Ponzi Scheme

WPost, Madoff Sentenced to Maximum 150 Years in Prison 

June 29, 2009 in News Stories | Permalink | Comments (1) | TrackBack (0)

Sunday, June 28, 2009

Reiss on Fannie & Freddie

Coming Out of Conservatorship: Developing an Exit Strategy for Fannie and Freddie, by David J. Reiss, Brooklyn Law School, was recently posted on SSRN.  Here is the abstract:

This brief article reviews the various policies that the Obama Administration can choose from as it considers how Fannie Mae and Freddie Mac should exit conservatorship. It first reviews the benefits and costs associated with the two companies. It then reviews four broad positions regarding the appropriate role of Fannie and Freddie in the housing finance market. It argues that the two companies should be privatized because Fannie and Freddie pose a systemic risk to the financial system, unfairly benefit from their regulatory privilege and do not create net benefits for the American people. Finally, it reviews four concrete plans to fundamentally change Fannie and Freddie’s structure, each involving different degrees of government involvement. It concludes that the two companies should be converted into generic financial holding companies and their public functions be reassigned to various federal instrumentalities.

June 28, 2009 in Law Review Articles | Permalink | Comments (0) | TrackBack (0)

Schwartz on Investment Management Regulation

Reconceptualizing Investment Management Regulation, by Jeff Schwartz, California Western School of Law, was recently posted on SSRN.  Here is the abstract:

This Article looks at mutual funds, hedge funds, and similar financial instruments as making up a single market - one whose operation is potentially marred by flawed investor decision-making born of imperfect information and bounded rationality. The piece then analyzes whether the current regulatory regime, which sharply divides this market into a heavily regulated sector that is accessible to all investors and a lightly regulated sector that is accessible only to the wealthy, is a well-reasoned response to this threat. I conclude that the current scheme is an ill-fit to the problems of incomplete information and irrationality, and that, in fact, the rules significantly reshape this marketplace to the detriment of ordinary investors.

To better respond to these concerns, I propose a reform agenda based on the libertarian-paternalist notion that government intervention should aim to bolster consumer decision-making without undermining freedom of choice. Under this revised framework, regulators would provide investors with information and guidance designed specifically so that investors are better situated to make sound financial decisions even though they are not perfectly rational. The rules, however, would not restrict investor alternatives. Instead, investors would be free to choose from an array of funds subject to varying levels of regulatory oversight. This system unwinds the deleterious aspects of the current regime and responds directly to the flaws in this marketplace, which creates an environment conducive to the type of robust competition that is in the public's interest.

June 28, 2009 in Law Review Articles | Permalink | Comments (0) | TrackBack (0)

Simkovic on Open Market Stock Repurchases

The Effect of Enhanced Disclosure on Open Market Stock Repurchases, by Michael Simkovic, Harvard Law School - John M. Olin Center for Law and Economics, was recently posted on SSRN.  Here is the abstract:

Publicly traded companies distribute cash to shareholders primarily in two ways - either through dividends or through anonymous repurchases of the companies' own stock on the open market. Companies must announce a repurchase authorization, but do not actually have to repurchase any stock, and until recently did not have to disclose whether or not they were in fact repurchasing any stock. Scholars and regulators noticed that companies frequently announced repurchases but then appeared not to complete them. Scholars and regulators became concerned that such announcements might be used by insiders to exploit public investors. To increase transparency and reduce opportunities for exploitive behavior, the SEC required that companies disclose their repurchase activity for the past quarter in their 10-Q and 10-K filings beginning in January 2004. This paper tracks the 365 repurchase programs announced in 2004 and finds that since the SEC disclosure requirement went into effect, companies are more likely to complete their announced repurchases and do so within a shorter time period after the repurchase announcement.

June 28, 2009 in Law Review Articles | Permalink | Comments (0) | TrackBack (0)

Thursday, June 25, 2009

SEC Settles Fraud Charges Against Former DVI Officers

The SEC announced that it settled a civil action in the United States District Court for the Eastern District of Pennsylvania against Steven R. Garfinkel (Garfinkel) and Michael O’Hanlon (O’Hanlon) for their participation in a financial fraud that caused the collapse of DVI, Inc. (DVI), a specialty finance company that loaned money to small healthcare service providers for the purchase of high-end medical equipment. The Commission’s complaint alleges that over a period of four years, Garfinkel, DVI’s former Chief Financial Officer, and O’Hanlon, DVI’s former Chief Executive Officer and President, used fraudulent means to conceal the company’s liquidity crisis from investors and to fraudulently obtain additional funding from its commercial lenders. Without admitting or denying the Commission’s allegations, Garfinkel and O’Hanlon consented to settle the action.

According to the Commission’s complaint, Garfinkel and O’Hanlon engaged in a fraudulent scheme to obtain additional funding from DVI’s commercial lenders by pledging collateral that did not meet the quality-related criteria specified in the loan covenants. In addition, Garfinkel and O’Hanlon manipulated paperwork to enable DVI to double pledge collateral and sent DVI’s commercial lenders false monthly reports to make it appear that there was adequate and appropriate collateral securing DVI’s lines-of-credit. Garfinkel and O’Hanlon concealed the fraudulent scheme from investors by knowingly filing false and materially misleading Commission reports and issuing false and materially misleading press releases. In furtherance of their scheme, Garfinkel and O’Hanlon also aided and abetted DVI’s filing violations by knowingly falsifying or causing others to falsify certain books and records, circumventing internal controls and misleading DVI’s auditors.

Garfinkel and O’Hanlon have agreed to the entry of a Final Judgment that permanently enjoins them from further violations of the relevant provisions of the Exchange Act and prohibits them from acting as officers or directors of a public company.  Garfinkel is currently incarcerated on related criminal charges. 

June 25, 2009 in SEC Action | Permalink | Comments (0) | TrackBack (0)

SEC Concludes Suprema Round-Tripping Charges

The SEC announced that on June 3, 2009, the United States District Court for the District of New Jersey entered Final Judgments against Mark Cocchiola, former CEO, president, and chairman of the board of directors of New Jersey-based Suprema Specialties, Inc. (“Suprema”), and Steven Venechanos, former CFO, secretary, and director of the company. The Commission’s complaint against Cocchiola and Venechanos alleged that they violated the antifraud and other provisions of the federal securities laws through their participation in a multi-year financial fraud orchestrated by Suprema’s management. Without admitting or denying the allegations in the complaint, Cocchiola and Venechanos each consented to the entry of final judgments imposing full injunctive relief and permanent officer and director bars. The final judgments ordered Venechanos to pay $1,484,202 in disgorgement and $732,126.45 in prejudgment interest and Cocchiola to pay $4,834,565 and prejudgment interest in the amount of $2,446,852.74, which obligations were deemed satisfied by the prior entry of restitution orders against each defendant in the parallel criminal action captioned U.S. v. Cocchiola and Venechanos, No. CR05-533-SRC.

The Commission also announced today that on June 4, 2009, the Commission brought to a close related civil injunctive proceedings against eleven other defendants whom the Commission alleged had participated in the Suprema financial fraud.

Each of the eleven above-listed individuals and entities had previously consented to the entry of judgments imposing full permanent injunctive relief and, in the case of the individuals, officer and director bars. These judgments had reserved the Commission’s right to apply to the court at a later time to determine disgorgement and civil penalties. In view of the restitution orders and other criminal sanctions subsequently imposed on these defendants in the parallel criminal case, the Commission has withdrawn its claims for additional disgorgement and civil penalties from these defendants.

As detailed in prior releases, the Commission’s complaints in this matter alleged that Suprema engaged in fraudulent “round-tripping” transactions that resulted in total misstatements of Suprema’s reported revenue of between approximately 35% and over 60% in each of the 1999, 2000 and 2001 fiscal years, and in the first quarter of fiscal year 2002. The complaints further alleged that the scheme resulted in total misstatements of Suprema’s reported accounts receivable of 60% or more in each of the 1999, 2000 and 2001 fiscal years.

June 25, 2009 in SEC Action | Permalink | Comments (0) | TrackBack (0)

FINRA Officer Testifies on Financial Literacy Initiatives

John M. Gannon, Senior Vice President, Office of Investor Education, FINRA, testified today on improving  financial literacy  before the Subcommittee on Financial Institutions and Consumer Credit,
Committee on Financial Services, U.S. House of Representatives.

June 25, 2009 in Other Regulatory Action | Permalink | Comments (0) | TrackBack (0)

FINRA Fines Wachovia $1.4 Million for Prospectus Delivery Failures

FINRA announced today that it fined Wachovia Securities, LLC $1.4 million for its failure to deliver prospectuses and product descriptions to customers who purchased various investment products from July 2003 through December 2004 and for related supervisory failures.  FINRA found widespread deficiencies relating to the delivery of prospectuses in connection with certain classes of securities: exchange-traded funds (ETFs), collateral mortgage obligations (CMOs), auction market preferred securities, corporate debt securities, preferred stocks, mutual funds, alternative investment securities, equity syndicate initial public offerings (IPOs) and secondary purchases of equity non-syndicate initial public offerings.

 FINRA's investigation showed that the firm failed to deliver the required prospectuses to customers in approximately 6,000 of approximately 22,000 transactions effected between July 2003 and December 2004. The market value of these 6,000 transactions was approximately $256 million.  The firm's failures to deliver prospectuses resulted from multiple causes, including coding errors, failures by certain business units to notify the firm's operations department that a prospectus was required to be delivered, and a failure to monitor and supervise the activities of its outside vendor contracted to deliver the prospectuses. FINRA also found that Wachovia Securities had failed to have adequate supervisory systems and policies and procedures in place to ensure that customers who purchased these investment products received prospectuses.

 In settling this matter, Wachovia Securities neither admitted nor denied the charges, but consented to the entry of FINRA's findings. As part of the settlement, a senior officer of the firm will certify that it has adopted and implemented systems and procedures reasonably designed to achieve compliance with federal securities laws and FINRA rules applicable to the delivery of prospectuses and product descriptions.

June 25, 2009 in Other Regulatory Action | Permalink | Comments (0) | TrackBack (0)

Wednesday, June 24, 2009

SEC Will Consider Discretionary Voting by Brokers at July 1 Meeting

The SEC has several important issues on its July 1 meeting agenda:

Item 1: The Commission will consider whether to propose amendments to the proxy rules under the Securities Exchange Act of 1934 to set forth requirements for U.S. registrants that have received financial assistance under the Troubled Asset Relief Program and that are required, pursuant to Section 111(e) of the Emergency Economic Stabilization Act of 2008, to include an advisory shareholder vote on executive compensation.

Item 2: The Commission will consider whether to approve the proposed rule change, as modified by Amendment No. 4, filed by the New York Stock Exchange, Inc. to amend NYSE Rule 452 and corresponding Listed Company Manual Section 402.08 to eliminate broker discretionary voting for the election of directors, except for companies registered under the Investment Company Act of 1940, and to codify two previously published interpretations that do not permit broker discretionary voting for material amendments to investment advisory contracts with an investment company.

Item 3: The Commission will consider whether to propose amendments to rules under the Securities Act of 1933, the Securities Exchange Act of 1934 and the Investment Company Act of 1940 to enhance the disclosures that registrants are required to make about compensation and other corporate governance matters, and to clarify certain of the rules governing proxy solicitations.

June 24, 2009 in SEC Action | Permalink | Comments (0) | TrackBack (0)

SEC Proposes Changes to Money Market Funds

The SEC today voted unanimously to propose rule amendments designed to significantly strengthen the regulatory framework for money market funds to increase their resilience to economic stresses and reduce the risks of runs on the funds.  The SEC is seeking public comment on the proposals, which would require money market funds to maintain a portion of their portfolios in highly liquid investments, reduce their exposure to long-term debt, and limit their investments to only the highest quality portfolio securities. The proposals also would require the monthly reporting of portfolio holdings, and allow the suspension of redemptions if a fund "breaks the buck" to allow for the orderly liquidation of fund assets.

The proposed amendments would, among other things:

  • Require that money market funds have certain minimum percentages of their assets in cash or securities that can be readily converted to cash, to pay redeeming investors.
  • Shorten the weighted average maturity limits for money market fund portfolios (from 90 days to 60 days).
  • Limit money market funds to investing in only the highest quality securities (i.e., eliminate their ability to invest in so-called "Second Tier" securities).
  • Require funds to stress test fund portfolios periodically to determine whether the fund can withstand market turbulence.

The proposals also would:

  • Require money market funds to report their portfolio holdings monthly to the Commission and post them on their Web sites.
  • Require funds to be able to process purchases and redemptions at a price other than $1.
  • Permit a money market fund that has "broken the buck" and decided to liquidate to suspend redemptions while the fund undertakes an orderly liquidation of assets.

In addition, the SEC is seeking comment on other issues related to the regulation of money market funds, including whether money market funds should, like other types of mutual funds, effect shareholder transactions at the market-based net asset value (i.e., whether they should have "floating" rather than stabilized net asset values), and whether to require that funds satisfy redemption requests in excess of a certain size through in-kind redemptions. The Commission may propose further amendments after it considers the comments it receives on these matters.

The SEC also is seeking comment on other issues, including alternatives with respect to the role of credit rating agencies in money market fund regulation.

Here is Chairman Schapiro's statement on the proposal.

June 24, 2009 in SEC Action | Permalink | Comments (0) | TrackBack (0)

Tuesday, June 23, 2009

Madoff Asks Court for Leniency in Sentencing

Bernard Madoff, in a letter from his lawyer to the court, asks for leniency in sentencing, as little as twelve years.  His lawyer stated that his estimated life expectancy is 13 years, and so twelve years would be close to a life sentence  (give him a year to enjoy his freedom?).  Perhaps expecting that is not likely, he argues in the alternative for a sentence of 15-20 years, arguing such a sentence would be consistent with other sentences for non-violent crimes.  WSJ, Madoff Seeks Leniency in Sentence.

June 23, 2009 in News Stories | Permalink | Comments (1) | TrackBack (0)

SEC & CFTC Divide Up Regulation over Derivatives

The Washington Post reports that the SEC and CFTC have reached agreement on the division of regulation over derivatives, with one exception.  The SEC would regulate derivatives linked to securities, the CFTC would regulate all others, and the agencies are still negotiating which would regulate derivatives linked to indexes.  WPost, Broad Agreement Reached on Derivative Oversight.

June 23, 2009 in News Stories | Permalink | Comments (0) | TrackBack (0)

SEC Commissioner Paredes Speaks on Shareholder Access

SEC Commissioner Troy A. Paredes spoke at the Conference on "Shareholder Rights, the 2009 Proxy Season, and the Impact of Shareholder Activism" sponsored by the Center for Capital Markets Competitiveness, U.S. Chamber of Commerce, in Washington, D.C. on June 23, 2009.  As you will recall, Commissioner Paredes voted against the SEC's proposal Shareholder Access reforms last month.  Here is an excerpt of his remarks:

The proposal, especially proposed Rule 14a-11 dictating a direct right of access to the company's proxy materials, encroaches far too much on internal corporate affairs, the traditional domain of state corporate law, and in doing so, denies each corporation the flexibility needed to adapt its governance practices to its distinct qualities and circumstances.

The whole of the Commission's access proposal is about far more than the driving goal of the '34 Act to empower investors by putting information in their hands. The proposal reaches too far past the point of being about disclosure or even about the voting process. Rather, the essence of the proposal is to realign corporate control at the federal level, upsetting the longstanding federalism balance in the area of corporate governance. The mandatory quality of Rule 14a-11 — particularly when one recognizes that the proposal allows a firm to adopt a more generous access regime but not one with more restrictions — belies that the rule is about disclosure or process as compared to achieving a particular substantive outcome.

June 23, 2009 in SEC Action | Permalink | Comments (0) | TrackBack (0)

Money Market Fund Reform on June 24 SEC Agenda

SEC's Open Meeting Agenda for June 24, 2009
Money Market Fund Reform
Office:  Division of Investment Management

The Commission will consider whether to propose amendments to rule 2a-7 and other rules under the Investment Company Act of 1940 governing the operation of money market funds.

June 23, 2009 in SEC Action | Permalink | Comments (0) | TrackBack (0)