Securities Law Prof Blog

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

Wednesday, June 19, 2013

SEC Chair Says Agency Will Require Admissions in Some Settlements

It has been widely reported that SEC Chair White stated that the agency will seek admissions in settlements in certain cases, because "public accountability in particular kinds of cases can be quite important."  Reuters, UPDATE 2-U.S. SEC to seek admissions in some settlements -White

Although described as a big change in enforcement policy, a majority of cases still will be settled without requiring any admissions from the defendants.  Since becoming SEC Chair, there has been speculation about whether White, a former prosecutor, would change the "neither admit nor deny" policy.  Senator Elizabeth Warren has pressed the SEC for details on its settlement policy.  Meanwhile, the Second Circuit has not yet issued an opinion in its review of the SEC and Citigroup settlement, which Judge Rakoff refused to approve because he had no basis for determining the fairness of the settlement.

June 19, 2013 in News Stories | Permalink | Comments (0) | TrackBack (0)

Wednesday, June 5, 2013

Treasury Plans to Sell 30 Million Shares of GM Stock

The U.S. Department of the Treasury announced that it plans to sell 30 million additional shares of General Motors Company (GM) common stock in an underwritten public offering in conjunction with GM’s inclusion to the S&P 500 index effective as of the close of trading on June 6, 2013.  The UAW Retiree Medical Benefits Trust will also participate in the proposed offering by selling 20 million shares, making the total offering size 50 million shares.

In December 2012, GM repurchased 200 million shares of GM common stock from Treasury.   At that time, Treasury also announced that it intended to sell its remaining 300 million shares into the market in an orderly fashion and fully exit its GM investment within the next 12-15 months, subject to market conditions. Since then, Treasury has been selling GM shares through its pre-defined written trading plans.

Treasury’s sale of its GM common stock is part of its continuing efforts to wind down the Troubled Asset Relief Program (TARP).

June 5, 2013 in News Stories | Permalink | Comments (0) | TrackBack (0)

Tuesday, June 4, 2013

House Committee Looks at Proxy Advisory Firms

The House Committee on Financial Services will hold a hearing tomorrow June 5 on “Examining the Market Power and Impact of Proxy Advisory Firms.”  According to the Committee's memorandum,

This hearing will examine the growing importance of proxy advisory firms in proxy solicitations and corporate governance, including the effect that proxy advisory firms have on corporate governance standards for public companies, the voting policies that proxy advisory firms have adopted, the market power of proxy advisory firms in an industry effectively controlled by two firms, and potential conflicts of interest that may arise when proxy advisory firms provide voting recommendations. This hearing will also examine proposals offered by the Securities and Exchange Commission (SEC) that seek to modernize corporate governance practices in order to improve the communications between public companies and their shareholders.

The Witness List includes

•The Honorable Harvey L. Pitt, Chief Executive Officer, Kalorama Partners, on behalf of the U.S. Chamber of Commerce
•Mr. Timothy J. Bartl, President, Center on Executive Compensation
•Mr. Niels Holch, Executive Director, Shareholder Communications Coalition
•Mr. Michael P. McCauley, Senior Officer, Investment Programs and Governance, Florida State Board of Administration
•Mr., Jeffrey D. Morgan, President and Chief Executive Officer, National Investor Relations Institute
•Ms. Darla Stuckey, Senior Vice President, Society of Corporate Secretaries & Governance Professionals
•Mr. Lynn E. Turner

June 4, 2013 in News Stories | Permalink | Comments (0) | TrackBack (0)

Friday, May 24, 2013

Obama Nominates Piwowar and Stein to SEC

The White House announced that it is nominating two individuals to seats on the SEC:

Michael Sean Piwowar, of Virginia, to be a Member of the Securities and Exchange Commission for a term expiring June 5, 2018, vice Troy A. Paredes, term expiring.  Mr. Piwowar is the chief Republican economist for the Senate Banking Committee.

Kara Marlene Stein, of Maryland, to be a Member of the Securities and Exchange Commission for a term expiring June 5, 2017, vice Elisse Walter, term expired.  Ms. Stein is a legal counsel and senior policy adviser to Sen. Jack Reed (D-R.I.).


May 24, 2013 in News Stories | Permalink | Comments (0) | TrackBack (0)

Thursday, May 23, 2013

ISS Settles SEC Charges that Employee Sold Confidential Proxy Voting Results for Tickets

The SEC charged proxy adviser Institutional Shareholder Services (ISS) with failing to safeguard the confidential proxy voting information of clients participating in a number of significant proxy contests. ISS, which is registered with the SEC as an investment adviser, agreed to settle the charges by paying $300,000 and retaining an independent compliance consultant.

According to the SEC, an ISS employee provided a proxy solicitor with material, nonpublic information revealing how more than 100 ISS institutional shareholder advisory clients were voting their proxy ballots. In exchange for voting information, the proxy solicitor provided the ISS employee with meals, expensive tickets to concerts and sporting events, and an airline ticket. The breach was made possible in part because ISS lacked sufficient controls over employee access to confidential client vote information, as this employee gathered the data by logging into the ISS voting website from home or work and using his personal e-mail account to communicate details to the proxy solicitor. The employee no longer works at ISS.

According to the SEC's order instituting settled administrative proceedings, the breach occurred from approximately 2007 to 2012. ISS failed to establish or enforce written policies and procedures reasonably designed to prevent the misuse of material, nonpublic information by ISS employees. Specifically, ISS lacked sufficient controls over employee access to databases of confidential client vote information.

*    *    *

Today's Wall St. Journal has an article, by Joann S. Lublin and Kirsten Grind, on For Proxy Advisers, Influence Wanes, reporting that the influence of ISS and Glass Lewis is waning, as the management of companies are increasingly reaching out to institutional investors for support on key votes and money managers are increasingly relying on their own research.  For example, both ISS and Glass Lewis recommended voting for the shareholder proposal to split the CEO and Chairman positions at JP Morgan Chase, yet it received only 32% of the vote.  The SEC settlement certainly creates additional reputational problems for ISS.

May 23, 2013 in News Stories, SEC Action | Permalink | Comments (0) | TrackBack (0)

Tuesday, May 21, 2013

Lew Reiterates Need for Money Market Fund Reform in Senate Testimony

Treasury Secretary Lew testified today before the Senate Banking Committee on the Financial Stability Oversight Council (FSOC) Annual Report to Congress.  His written testimony identified seven areas of risks to U.S. financial stability:

·         First, market participants and regulatory agencies should take steps to reduce vulnerabilities in wholesale funding markets that can lead to destabilizing fire sales. 
·         Second, significant reform in the housing finance system is still needed.
·         Third, government agencies, regulators, and businesses should take action to address operational risks from internal control and technology failures, natural disasters, and cyber-attacks, which can cause major disruptions to the financial system.
·         Fourth, as recent developments with the London Interbank Offered Rate (LIBOR) have demonstrated, reforms are needed to address the reliance on voluntary, self-regulated, and self-reported reference interest rates.
·         Fifth, financial institutions and market participants should be cognizant of interest rate risk, particularly given the historically low interest rate environment of the past few years. 
·         Sixth, long-term fiscal imbalances that have potential economic and financial market impacts should be addressed.
·         Finally, regulators need to continue to keep a close eye on potential threats to U.S. financial stability from adverse developments in the global economy.

With respect to the first risk, Wholesale Funding Markets, the Secretary's written testimony focused on the need for additional reforms related to money market mutual funds:

The Council remains concerned that vulnerabilities in wholesale funding markets could lead to destabilizing fire sales.  Specifically, run-risk vulnerabilities related to money market mutual funds (MMFs), which became apparent during the financial crisis, still remain, despite an initial set of reforms implemented in 2010.  In November 2012, the Council issued proposed recommendations for public comment to implement structural reforms of MMFs to reduce the likelihood of runs.  Council members should also examine whether similar reforms are warranted for other cash management vehicles. 

 The Secretary's testimony noted that:

The Council is also authorized to issue recommendations to a regulatory agency when financial activities and practices are creating risk for U.S. financial markets.  In November 2012, the Council issued for public comment proposed recommendations to the SEC with three alternatives for reform to address the structural vulnerabilities of MMFs.  The Council is currently considering the public comments on the proposed recommendations.  If the SEC moves forward with meaningful structural reforms of MMFs before the Council completes its process, the Council expects that it would not issue a final recommendation to the SEC.  However, if the SEC does not pursue additional reforms that are necessary to address MMFs’ structural vulnerabilities, the Council should use its authorities to take action in this area.

May 21, 2013 in News Stories, Other Regulatory Action | Permalink | Comments (0) | TrackBack (0)

SEC's Walter: No Review of Mandatory Arbitration Before 2014

SEC Commissioner Elisse Walter personally thinks that the SEC should take a hard look at mandatory arbitration of investors disputes with their broker-dealers and financial advisers, but says that the SEC will not have time to undertake a review before 2014.  Reuters, SEC review of brokerages use of arbitration not seen in 2013.  The agency continues to be busy with Dodd Frank and JOBS Act reforms, as well as money market fund reform.

May 21, 2013 in News Stories | Permalink | Comments (0) | TrackBack (0)

Wednesday, May 15, 2013

Sen. Warren Asks Fed, DOJ & SEC for Analysis on Settling without Admission of Guilt

Senator Elizabeth Warren (D-Mass.) posed this question to Ben Bernanke, Eric Holder and Mary Jo White in a May 14 letter: 

Have you conducted any internal research or analysis on trade-offs to the public between settling an enforcement action without admission of guilt and going forward with litigation as necessary to obtain such admission and, if so, can you provide that analysis to my office?

She previously asked the same question to Thomas J. Curry, Comptroller of OCC, at a hearing.  The OCC subsequently stated it did not have any such internal research or analysis.

In her letter Senator Warren stated that "I believe strongly that if a regulator reveals itself to be unwilling to take large financial institutions all the way to trial -- either because it is too timid or because it lacks resources -- the regulator has a lot less leverage in settlement negotiations and will be forced to settle on terms that are much more favorable to the wrongdoer."

Download Warren.LtrtoRegulatorsre2-14-13hrg[1]

May 15, 2013 in News Stories | Permalink | Comments (0) | TrackBack (0)

Tuesday, May 14, 2013

Senator Franken Introduces Arbitration Fairness Act

Once again an Arbitration Fairness Act (S. 878) has been introduced into Congress to prohibit mandatory arbitration clauses in disputes involving antitrust claims, civil rights claims, consumer claims (including services related to securities and other investments), and employment claims.  While similar measures introduced in recent years have gone nowhere, some Congressional representatives, including Senator Franken, who introduced this bill, have been energized by the Supreme Court's endorsement of class waivers in consumer arbitration contracts in Concepcion and the recent inclusion of a class action waiver by Charles Schwab in its brokerage agreements (which was upheld by a FINRA hearing panel and is now on appeal to FINRA's appellate body).

Download S.878

May 14, 2013 in News Stories | Permalink | Comments (0) | TrackBack (0)

Friday, May 10, 2013

Council of Institutional Investors Urges SEC to Curb Abuses of 10b5-1 Trading Plans

The Council of Institutional Investors has written its second letter to the SEC calling for re-examination of Rule 10b5-1 trading plans, which allow corporate insiders to trade in their company's stock pursuant to advance plans, and issuance of guidance or further rulemaking to prevent abuses.  CII notes that "Since the issuance of our letter, evidence continues to mount that many companies and company insiders have adopted practices that are inconsistent with the spirit, if not the letter of Rule 10b5-1" and cites articles in the Wall St. Journal.

The WSJ also featured the CII's letter in today's issue:  SEC Is Pressed to Revamp Executive Trading Plans

May 10, 2013 in News Stories | Permalink | Comments (0) | TrackBack (0)

Monday, May 6, 2013

Treasury Announces Plan to Sell Remaining GM Shares

The U.S. Department of the Treasury announced the next step in its plan to sell its approximately 241.7 million remaining shares of General Motors (GM) common stock with the initiation of a second pre-defined written trading plan.  Treasury’s sale of its GM common stock is part of its continuing efforts to wind down the Troubled Asset Relief Program (TARP). 
In December 2012, GM repurchased 200 million shares of GM common stock from Treasury.  At that time, Treasury also announced that it intended to sell its remaining 300 million shares into the market in an orderly fashion and fully exit its GM investment within the next 12-15 months, subject to market conditions.

May 6, 2013 in News Stories | Permalink | Comments (0) | TrackBack (0)

Wednesday, May 1, 2013

House Finance Chair Fundraises and Skis with Wall Street

ProPublica's Justin Elliott has a great story:  House Finance Chair Hensarling Goes on Ski Vacation with Wall Street.  The title says it all.

May 1, 2013 in News Stories | Permalink | Comments (0) | TrackBack (0)

Tuesday, April 30, 2013

Franken Calls on SEC to Prevent Mandatory Arbitration Clauses in Brokerage Contracts

Senator Al Franken (D-Minn) and other Congressional representatives have written to SEC Chair Mary Jo White, urging the agency to use its authority under Dodd-Frank to prevent mandatory arbitration clauses in brokerage contracts.  Concerns over the use of the predispute arbitration agreements have increased in the wake of Charles Schwab's inclusion of a class action waiver (contrary to FINRA rules) in its brokerage agreement.  A FINRA hearing panel recently held that FINRA could not enforce its rules prohibiting the class action waiver against Schwab because of U.S. Supreme Court's interpretation of FAA preemption in AT&T Mobility v. Concepcion.  FINRA Enforcement has appealed the hearing panel's decision.

Here is the text of the letter:

Dear Chairman White,
We write to express our strong belief that the Securities and Exchange Commission (the “Commission”) should promptly exercise its authority under Section 921 of the Dodd-Frank Wall Street Reform and Consumer Protection Act to prohibit the use of mandatory arbitration provisions in customer service agreements.
The Dodd-Frank Act was enacted, among other reasons, to protect American consumers from abusive financial services practices.  Section 921 reflects Congress’s concern over the increasingly widespread use of mandatory arbitration agreements in customer and client contracts, and grants the Commission authority to restrict or prohibit the use of these provisions.  Ensuring a choice of forum, particularly for small investors, heightens fairness and ultimately enhances participation in our capital markets.  To our disappointment, in the almost three years since the Dodd-Frank Act’s enactment, the Commission has largely disregarded this important mandate.
The time is ripe for the Commission to act under Section 921 to protect the investing public and prevent further abuse of forced arbitration contracts.
Recently, we were alarmed to see further attempts to erode investor rights when Charles Schwab, one of the country’s largest brokers, expanded the mandatory arbitration clauses in its customer agreements to include a mandatory class action waiver clause.  In this instance, Schwab argued that, in response to the Supreme Court’s interpretation of the Federal Arbitration Act (FAA) in AT&T Mobility v. Concepcion, it could include a waiver of class action and class arbitration rights in its customer agreements.  FINRA initiated a disciplinary action against Schwab for violation of FINRA rules barring class action waivers.  In February, however, a FINRA hearing panel ruled that although Schwab’s actions did in fact violate FINRA rules, those rules could not be enforced under Concepcion.[1]
While the Supreme Court in Concepcion did find that the FAA preempts state actions that would restrict the use of arbitration, the facts in the Schwab case are notably distinguishable—not least because FINRA is a membership organization seeking to enforce its own rules.  However, the ambiguity created by the panel’s ruling underscores the urgency with which the Commission should adopt rules under Section 921.
Section 921 was included in the Dodd-Frank Act to address the threat to consumers posed by mandatory arbitration clauses in investment contracts.  During Congress’s deliberation of this section, legislators heard concerns that investors forced into arbitration must face “high upfront costs; limited access to documents and other key information; limited knowledge upon which to base the choice of arbitrator; the absence of a requirement that arbitrators follow the law or issue written decisions; and extremely limited grounds for appeal.”[2]
If arbitration offers investors an efficient forum to resolve disputes, as some argue, investors may choose that option—but they should be given the choice.  It is equally important that investors not be precluded from bringing class actions because of contractual fine print imposed by a mandatory waiver class action clause.
Although evidence suggests that the use of mandatory arbitration agreements is widespread, we are concerned about the lack of transparency and reliable data regarding the prevalence of such agreements.  We encourage the Commission to track how many brokerage firms are inserting mandatory arbitration agreements and class action waivers into consumer contracts, so that this questionable practice may be better monitored and addressed.
We are deeply concerned that the Commission’s failure to respond to the dangers posed by widespread forced arbitration will weaken existing investor protections.  Given the uncertainty created by the recent FINRA decision, we urge the Commission to act quickly to exercise its authority under Section 921 to prevent this practice and protect investor rights.
We recognize that the Commission is balancing competing demands, and that it must prioritize its recent mandates by Congress.  The exigent circumstances at hand, however, require that the Commission exercise its authority under Section 921 of the Dodd-Frank Act and prohibit the use of mandatory arbitration provisions.

[1] FINRA Department of Enforcement v. Charles Schwab & Company Inc. (CRD No. 5393) Disciplinary Proceeding No. 201102976021. February 21, 2013.
[2] Senate Committee on Banking, Housing, and Urban Affairs on S. 3217, S. Rep. No.111-176, at 110.

April 30, 2013 in News Stories, Securities Arbitration | Permalink | Comments (0) | TrackBack (0)

Wednesday, April 24, 2013

SEC' Aguilar Calls for Inquiry into Twitter Hoax

SEC Commissioner Luis Aguilar said in an email to the Wall St. Journal that the SEC staff should look into yesterday's Twitter "hoax" that there were explosions at the White House and that the President was injured.  Although the story was quickly debunked, it caused the stock market to drop as a result of algorithmic trading. Mr. Aguilar said the SEC "needs to keep current on how technology is intersecting with, and effecting, the markets we regulate."  WSJ, SEC Official Seeks Inquiry Into Twitter Hoax

April 24, 2013 in News Stories, SEC Action | Permalink | Comments (0) | TrackBack (0)

Monday, April 22, 2013

Rep. Waters Introduces Investment Adviser Examination Improvement Act

Representative Maxine Waters (D-Cal.), along with Representative John Delaney (D-MD), again introduced legislation that would allow the SEC to charge user fees to fund examinations of investment advisers, the Investment Adviser Examination Improvement Act of 2013.  Currently, the SEC examines only about eight per cent of registered investment advisers each year.  Imposing user fees is a sensible solution, since the industry is opposed to the creation of an SRO for investment advisers and FINRA, which once appeared to want the job, now states it has no interest in becoming the SRO for investment advisers.  The proposed legislation also has the backing of a number of organizations including NASAA, which issued a supporting statement.  Nevertheless, the likelihood of action in the foreseeable future is remote.

InvNews, Waters introduces bill to fund investment adviser examinations

April 22, 2013 in News Stories | Permalink | Comments (0) | TrackBack (0)

Monday, April 15, 2013

Reuters: OCC Will Fault JP Morgan over Madoff Accounts

Reuters reports that the Office of the Comptroller of the Currency is expected to issue a cease and desist order against JP Morgan Chase, which served as Bernard Madoff's bank, for failing to conduct adequate due diligence and report suspicious activity under the anti-money laundering regulations.  No timing for the regulatory action was given.  Exclusive: U.S. Regulator to Fault JPMorgan Over Madoff Accounts

April 15, 2013 in News Stories | Permalink | Comments (0) | TrackBack (0)

Thursday, April 11, 2013

Ex-KPMG Partner Charged with Insider Trading in Criminal and Civil Charges

No doubt readers of this Blog have been following with interest the developments about the ex-partner of accounting firm KPMG (now identified as Scott London), who has admitted to passing along confidential information about audit clients to a friend (now identified as Bryan Shaw).  London has now been charged criminally with conspiracy to commit securities fraud through insider trading in Los Angeles, and the SEC has brought civil charges.  The complaint says London tipped off Shaw about five KPMG clients (previously only Herbalite and Skechers were identified) in exchange for bags of cash, concert tickets and a Rolex watch.  London allegedly made about $1 million profit in trades.  The illegal activity began in October 2010 and continued for 18 months.

The SEC's civil complaint states that London was the audit partner for Deckers Outdoor Corp.  In addition, London obtained inside information about two impending mergers involving two former KPMG clients -- RSC Holdings and Pacific Capital Bancorp --that he allegedly tipped to Shaw.

WSJ, Former KPMG Partner Is Charged

SEC, SEC Charges Former KPMG Partner and Friend with Insider Trading

April 11, 2013 in News Stories, SEC Action | Permalink | Comments (0) | TrackBack (0)

Monday, April 8, 2013

White Confirmed as SEC Chairman

The Senate confirmed Mary Jo White as SEC Chairman today, without any debate.

April 8, 2013 in News Stories | Permalink | Comments (0) | TrackBack (0)

Friday, March 29, 2013

Senior SAC Advisor Arrested in Insider Trading Investigation

Federal authorities in Manhattan arrested Michael Steinberg, a portfolio manager at New York-based hedge fund advisory firm Sigma Capital Management, and the SEC brought a separate civil enforcement action against him.  The charges in both actions stem from the investigation into trading on inside information in Dell and Nvidia Corp.  St einberg is the most senior employee in Steven Cohen's hedge fund to be arrested

The SEC alleges that Steinberg's illegal conduct generated more than $6 million in profits and avoided losses. Steinberg received illegal tips from Jon Horvath, an analyst who reported to him at Sigma Capital. Horvath was charged last year among several hedge fund managers and analysts as part of the broader investigation into expert networks and the trading activities of hedge funds.


March 29, 2013 in News Stories, SEC Action | Permalink | Comments (0) | TrackBack (0)

Thursday, March 28, 2013

Judge Holds up Approval of SAC Settlement Because of Citigroup Appeal

Judge Victor Marrero, a federal district judge in the S.D.N.Y., said he needed more time to consider a $602 million settlement between the SEC and the hedge fund, SAC Capital Advisors LP, intended to resolve insider-trading allegations.   The judge said he was concerned about the potential impact of SEC v. Citigroup, an appeal now pending before the Second Circuit, in which the SEC and Citigroup challenge the district court's refusal to approve the settlement.  He suggested he might condition his approval of the SAC settlement on the outcome of that decision.  WSJ, Judge Needs More Time to Weigh SAC Settlement .

March 28, 2013 in News Stories | Permalink | Comments (0) | TrackBack (0)