While declining to provide details to the WSJ, FINRA apparently issued a statement that it "continues to look at ways to streamline our management structure to be a more efficient, focused regulator." A FINRA spokesperson did say that enforcement staff's headcount and budget would not be reduced, according to the article.
It has been widely reported that FINRA’s financial position has been adversely affected by Wall Street's financial meltdown.
David Paulukaitis, former associate director of FINRA's Atlanta district office, described the departed group as "well regarded … people who truly do have a lot of knowledge and experience and try to do it the right way." "The question is, 'who is replacing them?'" he said.
J. Boyd Page, an investors attorney with Page Perry LLC, added “Why would FINRA fire senior enforcement people at the very time you would expect it to be aggressively prosecuting the many abuses of investors that took place in recent years? The whole situation smells. If the decision was financially motivated, it underscores the inadequacies of self-regulation. If Wall Street can interfere with fraud investigations merely by cutting back on FINRA’s funding, the system doesn’t work.”
At a time when the President and Congress are struggling to reform and invigorate regulation of broker dealers and enforcement of the securities laws, FINRA’s termination of key FINRA enforcement officers serves as a reminder that we cannot rely on government and self-regulation to “keep them honest.” Private enforcement of legal rights through litigation by aggrieved investors and their attorneys, acting as private attorneys general, remains an important aspect of maintaining the integrity of our capital markets . If honest markets are good for America, securities litigation and arbitration are good for America.
• The Dow Jones Industrial Average opened the week at 10,067 and, on Monday jumped 118 points.
• On Tuesday, the Dow Jones Industrial Average rose 111 points.
• On Wednesday, the Dow Jones Industrial Average dropped 26 points.
• On Thursday, the Dow Jones Industrial Average plunged 268 points.
• On Friday, the Dow Jones Industrial Average rose 10 points and closed the week at 10,012.
]]> • Concerns about lost jobs and European debt problems rattled the markets this week.• MSNBC reports that Portugal, Greece and Spain are all facing financial crises that are causing concerns in financial markers across the globe.
• Some good news came on the unemployment front when it was announced that the unemployment rate had dropped to 9.7%. Unfortunately, economists still predict that it will take at least four years for the economy to regain the 8.4 million jobs lost in the recession.
• CBS News announced that it was laying off dozens of additional employees due to budget cuts. This action reflects an ongoing trend that has decimated many of the news sources that Americans have relied on over the years. Continuation of this trend may ultimately pose a threat to our “free press.”
• Berkshire Hathaway has eliminated 3,000 jobs since December.
• Sony Pictures announced that it would eliminate 450 jobs because of declining DVD sales.
• Walmart reported that it was eliminating 300 more jobs at its headquarters. The retail giant has now cut almost 14,000 jobs in the past twelve months.
• Both Ford and General Motors reported double-digit sales gains in January.
• Manufacturing activity grew for the sixth straight month.
• Warren Buffet’s Berkshire Hathaway lost its AAA rating at Standard & Poors.
• New York Attorney General Andrew Cuomo filed civil fraud charges against Bank of America and its former CEO Ken Lewis.
• Bank of America agreed to pay $150 million to settle SEC claims that it mislead shareholders in the Merrill Lynch acquisition. A U.S. District Court rejected the bank’s earlier attempt to settle similar claims for $33 million.
• State Farm is canceling insurance coverage for approximately 125,000 Florida homeowners.
• Some high profile bankers disagree with other commercial property experts on the situation in the commercial real estate market. Some believe that the market has hit bottom while others feel that the problems are just beginning. It’s a situation to keep a close eye on.
• Banking regulators closed a small Minnesota bank this week, making it sixteen banks that have been closed this year.
• U.S. exports increased by 18.1% in the last quarter of 2009. The weak U.S. dollar undoubtedly contributed to this surge.
• USA Today reports that many state and local governments used federal stimulus money to minimize spending cuts. As a result, many experts are concerned about what happens when the federal stimulus money is gone.
Page Perry’s Market Monitor is published periodically to give investors an overview of certain recent developments impacting the economy and/or the investment markets.
]]>According to the article, which references a complaint filed by the S.E.C., State Street sold its Limited Duration Bond Fund as an alternative to a money market fund. By 2007, however, the fund was almost entirely invested in subprime securities. State Street misled many investors about the fund’s exposure to subprime investments, the S.E.C. said, but provided particular investors with more complete information.
Those favored investors included clients of State Street’s internal advisory groups, which advised some investors in the fund. The advisory groups recommended that their clients, including State Street’s own pension plan, redeem their investments. State Street sold the fund’s most liquid holdings to meet these redemptions, the S.E.C. said, leaving the remaining investors with largely illiquid holdings and huge losses.
The funds, which were managed by State Street Global Advisors, accounted for about $13 billion of State Street’s funds under management in 2007.
The settlement will be allocated among about 270 investors who lost money. It includes a $50 million fine and $8 million in forfeited advisory fees and interest. The payment is in addition to $350 million the bank will pay to settle private claims, the S.E.C. said. The bank will pay an additional $20 million to settle with Massachusetts authorities.
State Street has attempted to put a positive spin on its settlement of the fraud charges. “We value our reputation as a trusted fiduciary to institutions around the world and we recognize the critical importance of fulfilling our fiduciary obligations. As such, we were determined to work with our regulators and with our customers to resolve their concerns,” Ronald E. Logue, State Street’s chairman and chief executive, said in a statement.
J. Boyd Page, an investors’ attorney with Page Perry LLC, observed “This is simply an appalling abuse of trust. Unfortunately, this type of abuse has happened across Wall Street on repeated occasions over the past several years. People who don’t believe that are just kidding themselves.”
Page Perry, LLC is an Atlanta-based law firm with over 125 years collective experience representing investors in securities-related litigation and arbitration. While past results are not indicative of future success, Page Perry’s attorneys have recovered over $1,000,000 for clients on more than 30 occasions, and have aided clients who have been the victims of financial adviser abuse and scams. Page Perry’s attorneys are actively involved in counseling institutional and individual investors regarding their investment problems. For further information, please contact us.
In addition, bond funds that are called “short-term” may not be, and may hold concentrations risky securities that can fall more than the average short-term bond fund. We recently saw that a bond fund, promoted as an “ultra short term” bond fund that was like a money market fund, was actually a bet on mortgage-backed securities and dropped over 30%.
Even money-market funds don't guarantee against losing money, as we saw when the collapse of Lehman Brothers Holdings Inc. caused Reserve Primary Fund to melt down.
On the other hand, bond yields (and bond fund yields) will go up. So if you are a buy-and-hold bond fund investor, your income will increase as fund managers reinvest at higher rates. If you do not need to sell shares of the bond fund, then you should not be overly concerned about a lower NAV.
"The good news is that even in the worst rising-rate environment, outsized losses have been rare" in short-term bond funds, says Eric Jacobson, director of bond-fund research for Morningstar. Still, "people should be very well prepared for losses."
Page Perry, LLC is an Atlanta-based law firm with over 125 years collective experience representing investors in securities-related litigation and arbitration. While past results are not indicative of future success, Page Perry’s attorneys have recovered over $1,000,000 for clients on more than 30 occasions, and have aided clients who have been the victims of financial adviser abuse and scams. Page Perry’s attorneys are actively involved in counseling institutional and individual investors regarding bond fund investments. For further information, please contact us.
Bair was an early critic of subprime mortgage market excesses that helped inflate a historic housing price bubble well into 2007. She made waves this week with an FDIC proposal calling for banks with risky compensation schemes to pay higher deposit insurance premiums.
In addition to Bair, the commission heard from Securities and Exchange Commission Chairman Mary Schapiro, who said a program set up by the SEC in 2004 to supervise investment banks was a failure. "We have to conclude that that program was not successful," she said of the “Consolidated Supervised Entities program” that was supposed to oversee industry giants Goldman Sachs Morgan Stanley, Lehman Brothers, Merrill Lynch and Bear Stearns.
Why was it a failure? The program was based on voluntary regulation, was inadequately staffed, was beyond the SEC's traditional capabilities, and unwisely let firms hold lower levels of capital, Shapiro said. It was ended in September 2008.
Schapiro said the SEC is still “seeking to determine whether investors were provided accurate, relevant and necessary information, or misled in some manner" in markets for subprime mortgage-backed securities and collateralized debt obligations in the real estate bubble.
All of this serves as clear evidence that reliance on self-regulation and the belief that financial institutions will do the right thing simply doesn't work. We cannot rely on passive government and voluntary regulation to make Wall Street honest. Aggressive governmental regulation of the financial markets is essential. Private enforcement of legal rights through litigation by aggrieved investors and their attorneys remains equally important. Without these protections, we risk letting Wall Street become a Barbary Coast harboring securities pirates.
The VALIC representatives presented themselves as financial advisors, rather than sellers of insurance products, and were trained to target 403(b) plan participants, the complaint alleges. Because VALIC's sales representatives presented themselves as knowledgeable financial advisers — rather than insurance agents — the teachers and other clients trusted them and bought variable annuities that they otherwise wouldn't have purchased.
Anyone who holds a variable annuity in a tax-deferred account, such as an IRA, 401(k), or 403(b) plan, should consider that fact a red flag that warrants consultation with an attorney with experience in securities matters.
Page Perry, LLC is an Atlanta-based law firm with over 125 years collective experience representing investors in securities-related litigation and arbitration. While past results are not indicative of future success, Page Perry’s attorneys have recovered over $1,000,000 for clients on more than 30 occasions, and have aided clients who have been the victims of financial adviser abuse and scams. Page Perry’s attorneys are actively involved in counseling individual investors regarding their investment problems. For further information, please contact us.
• The Dow Jones Industrial Average opened the week at 10,173 and, on Monday rose 24 points.
• On Tuesday, the Dow Jones Industrial Average fell 3 points.
• On Wednesday, the Dow Jones Industrial Average jumped 42 points.
• On Thursday, the Dow Jones Industrial Average plunged 116 points.
• On Friday, the Dow Jones Industrial Average fell 53 points and closed the week at 10,067.
]]> • President Obama identified the creation of jobs as the biggest challenge facing our economy.• Verizon announced that it was cutting its workforce by 6% and eliminating 13,000 jobs.
• Home Depot reported that it was eliminating 1,000 jobs.
• ATK Space Systems, the builder of booster rockets for the space shuttle, is laying off 420 employees.
• A survey of fifty economists reported that the government’s stimulus plan has saved as many as 1.2 million jobs; however, two-thirds say that the government needs to do more to help the economy.
• Apple reported its best quarterly results ever.
• Microsoft profits were up 60% - above expectations.
• The average college endowment fund was down 18.7% last year. Many of these institutions suffered huge losses investing in the toxic structured finance products that Wall Street dumped on unsuspecting investors.
• Toyota announced that it was suspending the manufacture and sale of many of its best-selling models as a result of recalls. The automobile company has recalled 5.3 million vehicles so far.
• Toyota dealerships could lose as much as $2.47 billion per month during the period that sales of its eight models remain suspended.
• Honda announced that it was recalling 646,000 Fit hatchbacks.
• Ben Bernanke was confirmed as Federal Reserve Chairman for a second term.
• A recent study by the Brookings Institute confirmed that more households whose income is below the poverty level live in the suburbs not in cities.
• In December, sales of existing homes experienced the largest monthly drop in 40 years.
• Banking regulators closed six banks this week bringing the number of banks closed in January to fifteen.
• The International Air Transport Association predicts that it will take the airline industry three years to recover from the recession.
• Leaders attending the recent World Economic Forum in Switzerland were in general agreement that there has been a huge breakdown in the public’s trust in government, financial institutions and big business. Unfortunately, no one seems willing to do anything about it.
Page Perry’s Market Monitor is published periodically to give investors an overview of certain recent developments impacting the economy and/or the investment markets.
]]>According to allegations and emails set forth in the Complaint, the due diligence committee ignored the repeated warnings that they received from the outside due diligence reports. The Complaint alleges that Securities America made a deliberate decision to not identify these risks to investors and provide them with certain disclosures that were recommended by the due diligence reports.
From the evidence in the Massachusetts Complaint and other documents, it appears that Securities America not only mislead investors but also intentionally made material misrepresentations and omissions to investors in order to get them to purchase these Medical Capital Notes. According to Pratt H. Davis of Page Perry, LLC, "it appears that Securities America not only turned a blind eye to the red flags and significant warnings in the due diligence reports, but also took specific actions to mislead the investors into believing such risks did not exist." Davis' partner, J. Boyd Page, noted "we're seeing a lot of this kind of problem in cases arising out of private (Reg D) offerings. Investors need to be very careful about these types of offerings."
Page Perry, LLC is an Atlanta-based law firm with over 125 years collective experience representing investors in securities-related litigation and arbitration. While past results are not indicative of future success, Page Perry’s attorneys have recovered over $1,000,000 for clients on more than 30 occasions. Page Perry’s attorneys are actively involved in representing institutional and corporate investors in auction-rate securities cases. For further information, please contact us.
]]>• Unemployment will peak well above 10% in 2010 according to many economist. This will result in decreased income tax receipts and increased demand for social services.
• Spending will decrease causing sales tax receipts to decrease.
• Rising delinquencies and defaults on residential and commercial properties will lead to decreased property tax receipts.
• The current recession will be more severe than the last one, causing state fiscal problems to be deeper and more persistent than in previous recessions, according to the Center on Budget and Policy Priorities, a non-partisan group focusing on the needs of low-income families.
• At least 48 states have budget concerns, with shortfalls estimated at $168 billion for the 2010 fiscal year.
• At least 36 states already anticipate significant deficits for 2011, with total budget shortfalls estimated at an additional $180 billion.
Historically, the municipal bond market has completely ignored the risk of default, according to Mr. Schreibner, and an average 1.5% risk of default has lulled many investors into a state of complacency. Mr. Schreibner finds this eerily similar to the historic-low 3% default rate on residential mortgages just before the current financial crisis that took down some of the largest financial institutions in the world.
Municipal bond prices fell by approximately 20% in 2008. Mr. Schreibner says he is baffled that pricing recovered last year and that municipal bonds now trade at a premium.
Page Perry, LLC is an Atlanta-based law firm with over 125 years collective experience representing investors in securities-related litigation and arbitration. While past results are not indicative of future success, Page Perry’s attorneys have recovered over $1,000,000 for clients on more than 30 occasions, and have aided clients who have been the victims of financial adviser abuse and scams. Page Perry’s attorneys are actively involved in counseling institutional and individual investors regarding their investment problems. For further information, please contact us.
]]>Thousands of investors are still unable to liquidate their auction rate securities except by selling them at a steep discount on a limited secondary market. There have been regulatory settlements and voluntary redemptions that have restored liquidity to many investors, but those have primarily been the lower-risk municipal bond and student loan-backed auction rate securities. Investors have had much less success in getting liquidity for auction rate securities backed by CDOs or other mortgage-backed instruments, forcing many of them to turn to legal action to get access to their money.
According to attorney Jones, “it will soon be three years since the CDO and auction rate securities markets started to fail, and any investors who are still locked out of their money from these investments need to start worrying about the statute of limitations for making a legal claim.” Jones’ law firm, Page Perry, is based in Atlanta but represents investors in securities arbitrations and lawsuits all over the country. “If you are still holding auction rate CDOs or other securities that you have been unable to liquidate due to the collapse of the market in 2007-2008,” says Jones, “you need to talk to a lawyer now before it is too late.”
• The markets were closed on Monday for Martin Luther King Day.
• On Tuesday, the Dow Jones Industrial Average opened at 10,610 and soared 116 points.
• On Wednesday, the Dow Jones Industrial Average dropped 122 points.
• On Thursday, the Dow Jones Industrial Average fell 213 points.
• On Friday, the Dow Jones Industrial Average plunged 216 points and closed the week at 10,173.
]]> • Forty-three states reported that unemployment rates increased in December. The unemployment rates were the highest in Michigan (14.6%), Nevada (13%), Rhode Island (12.9%), South Carolina (12.6%), and California (12.4%).• Sixteen states have unemployment rates of 10% or higher.
• Walmart announced that it was eliminating more than 11,000 jobs at its Sam’s Club stores.
• General Motors plans to eliminate 8,300 jobs in Europe.
• Uno Restaurant Holdings filed for bankruptcy.
• Home construction levels are approximately 75% below their high levels in 2006.
• The U.S. Supreme Court ruled that limits on campaign contributions were unconstitutional. The Court’s order effectively puts government up for sale to the highest bidder.
• The five largest holders of U.S. government debt, in order, are the Federal Reserve and other government agencies, individual and corporate investors, China, Japan, and mutual funds.
• Banking regulators shuttered five banks this week bringing the total number of banks closed this year to nine.
• Charitable donations earthquake victims in Haiti exceed $355 million.
• Approximately 900 of the 3,000 automobile dealerships closed by General Motors and Chrysler are appealing the decisions to close them.
• Republican Scott Brown won the Massachusetts Senate seat previously held by Ted Kennedy. Brown’s election is expected to have a significant impact on proposed healthcare reform.
• A recent poll of college freshmen revealed that 78.1% regarded being well-off financially as very important. In 1969, only 42.2% of college freshmen held that view.
• Some of the country’s leading lending institutions report that consumer loan problems seem to be leveling off.
• Many credit card issuers have written off 10% or more of their loan portfolios.
Page Perry’s Market Monitor is published periodically to give investors an overview of certain recent developments impacting the economy and/or the investment markets.
]]>As finally adopted, however, the rule imposes some new requirements that should decrease the possibility of fraud in advisory accounts. First, the rule eliminates one of the few exceptions to the rule requiring that the "qualified custodian," or financial institution with actual custody, send at least quarterly account statements directly to the client. The result of this is that virtually all advisers whose clients' funds are with qualified custodians will receive statements from the independent qualified custodian. In addition, the new rule requires the adviser to include a legend in the notice urging clients to compare the account statements they receive from the qualified custodian with those they receive from the adviser, if any.
For those advisers who have actual custody, or who have custody by any reason other than merely the ability to deduct fees, the new rule requires the adviser to enter into an agreement with a PCOAB-certified accountant to conduct a surprise audit of client assets. The agreement must require the accountant, among other things, to notify the Commission within one business day of finding any material discrepancy during the course of the examination, and to submit Form ADV-E to the Commission accompanied by the accountant’s certificate within 120 days.
A separate amendment renders an adviser to a pooled investment vehicle subject to the audit requirement. A pooled investment vehicles complies with the surprise verification requirements of the rule by obtaining an audit of the pool and delivering the audited financial statements to pool investors within 120 days of the pool’s fiscal year-end.
In a companion release, the Commission provided updated guidance for accountants that addresses the surprise examination.
The Commission also amended the existing rule to provide that an adviser has custody if a related person or entity is the qualified custodian. Such an adviser is exempt from the surprise audit requirement, however, if it can prove it is operationally independent of the related entity.
Finally, the SEC issued recommended procedure to be adopted to prevent fraud relating to client assets, including:
● conducting background and credit checks on employees of the investment adviser who will have access (or could acquire access) to client assets to determine whether it would be appropriate for those employees to have such access;
● requiring the authorization of more than one employee before the movement of assets within, and withdrawals or transfers from, a client’s account, as well as before changes to account ownership information; and
● limiting the number of employees who are permitted to interact with custodians with respect to client assets and rotating them on a periodic basis.
Page Perry LLC's compliance and regulatory section has experience in assisting and advising investment advisers with respect to their regulatory obligations, and in designing supervisory procedures that are compliant with current regulations.
The board of directors of a corporation is responsible for compensation decisions. The article makes note of the “business judgment rule,” which creates a legal presumption that the directors of a corporation act on an informed basis, in good faith and in the honest belief that the action taken is in the best interests of the company. Companies and their directors typically argue that they need to pay such large amounts to retain the talent needed to run the company, and use the business judgment rule to get the claim dismissed.
The business judgment rule does not always mean the shareholders lose, however. Earlier this year the Delaware Chancery Court, which is looked to by other state courts as a persuasive authority on issues of corporate law, denied a motion to dismiss a claim that Citigroup’s payment of $68 million to former CEO Charles Prince constituted “corporate waste.” Additionally, Prince received from Citigroup an office, an administrative assistant, and a car and driver for the lesser of five years or until he commences full time employment with another employer.
According to the Delaware court, directors have the authority and broad discretion to make executive compensation decisions, but “there is an outer limit.” That outer limit is exceeded when compensation is so disproportionately large as to be unconscionable and constitute waste.”
Citigroup shareholders alleged that this compensation package constituted waste and met that standard because, in part, Prince’s failures as CEO were allegedly responsible, in part, for billions of dollars of losses at Citigroup. It will be interesting to see how the New York court rules in the case against Goldman.
She pointed out that the same people who call for eliminating the state cops on the beat are the same ones that thought that market participants would correct bad behavior to protect their own interests. “The naivete behind the view that markets are always self-correcting now seems apparent,” she said. “But clearly, reliance by the investing public on federal securities regulators, self-regulatory organizations and `gatekeepers' in the years preceding the crisis and in its midst to detect and prevent even the most egregious of frauds and deceit was equally naive.”
Ms. Crawford also pointed out, correctly, that states were at the forefront of major enforcement cases such as those that claimed conflicts of interest among research analysts on Wall Street and the recent auction-rate securities debacle.
The FCIC is scheduled to issue a report to Congress in December on what caused the financial meltdown.
FINRA responded defensively but illogically. FINRA executive vice president Howard Schloss, said. " It would be nice if Mrs. Crawford would stop pointing fingers at other regulators, and be equally introspective about the performance of state regulators in the wake of the Madoff, Stanford and the dozens of other frauds that have happened in states all over the country.” Mr. Schloss conveniently ignores the fact that the states were hampered in the Madoff and Stanford cases because they have no examining authority over such large firms. The truth is that state securities officiers have been at the forefront of virtually every major enforcement initiative over the past twenty years while FINRA is routinely a “Johnny come lately” to such actions.
]]>Over the last two years, Washington has made it evident that it will not allow large financial institutions to fail. By placing a monetary responsibility (in the form of the bank tax) on the banks for this effective insurance, the Obama administration will hopefully deter the financial sector from over-expanding. The natural tendency of an industry in the face of government subsidy is to expand beyond the economic efficiency point. This tax will act to offset that implicit subsidy.
In essence, this tax asks banks to pay the government for the return to stability that the government’s actions ensured. Financial sector stability contributed largely to increasing profits at the banks, as did consolidation of large banks into even larger banks. As a result, the average employee at the 38 largest banks will earn $149,192, about $3,000 more than last year. This news will likely affect the already increasing populist sentiment among consumers and might prompt the government into further regulatory actions against banks.
The real question in many people’s minds is whether the tax is sufficient “repayment” for the trillion dollar bailout funded by taxpayers. Given the huge profits that have resulted from the bailout, the proposed tax appears to be but a drop in the bucket.