On February 23, 2010, the Project On Government Oversight sent a letter to Congressional committee members charged with financial oversight urging them not to trust or rely on the Financial Industry Regulatory Authority (FINRA) to police the brokerage industry. See “Watchdog slams Finra’s ‘abysmal’ record,” by Dan Jamieson, published in InvestmentNews.
Continue reading "Government Watchdog Calls for Elimination of FINRA" »
Sales of poorly understood, non-conventional investments tend to increase in low-yield environments like the present. Reverse convertible notes are an example of this dangerous trend, says Jeff Benjamin in his recent InvestmentNews article, “Reverse convertible notes warrant sales scrutiny.”
The state of Hawaii took a $250 million write-down on the auction rate securities in its investment portfolio at the end of 2009, according to a recent Bloomberg report. The write-down included 57 issues of student loan-backed securities that were purchased from Citigroup for over $1 billion in 2007 and early 2008, when they were sold to the state as tax equivalents that could be liquidated within 7 to 10 days. But the state—like thousands of other investors holding auction rate securities—has been unable to liquidate, prompting the state to write down their value to $752 million. The liquidity problem with these securities has exacerbated budget woes for a state that has a $1.2 billion deficit due to the drop of tourism revenue tied to the recession.
Continue reading "Auction Rate Securities Abuses Contribute to State's Financial Woes" »
New York Attorney General Andrew Cuomo has announced a $2.75 million settlement with a former top executive at UBS over allegations that he used insider information to sell his auction rate securities just before the market for such securities collapsed. According to prosecutors in Cuomo’s office, the executive in question was UBS’s global head of municipal securities and was in charge of fixed income investments for the bank’s American operations when he decided to close his positions in auction rate securities in December 2007 because he heard that the market for student loan-based auction rate securities was about to fail—and he did so without warning investors of the increased risks of such securities.
Continue reading "Former UBS Executive Settles Regulatory Auction Rate Securities Action" »
Morgan Keegan has been aggressively fighting an array of regulatory actions and investor claims. As a result of these "hardball" defense tactics, Morgan Keegan's legal costs have doubled and are consuming a significant chunk of the firm's revenue as a result of investigations by securities regulators and legal actions by aggrieved investors, according to an Feb. 25 article in InvestmentNews by Bruce Kelly.
Continue reading "Morgan Keegan's Legal Costs Soar Under an Avalanche of Claims" »
A Memphis, Tennessee Chancery court has vacated an award in favor of an investor that was issued by a FINRA arbitration panel in a Morgan Keegan bond fund case. Vacatur of an arbitration award is highly unusual, and should not occur without proof of some corruption in the process, such as evident partiality of an arbitrator. The reason given by the Tennessee court was that two of the arbitrators were “biased” because they had previously ruled against Morgan Keegan in another Morgan Keegan bond fund case.
Continue reading "Tennessee State Court Ruling Undermines Securities Arbitration" »
While SEC Chairman Mary Shapiro is advocating a watered-down standard of conduct for brokers, which would not require them to act in their clients’ best interest, Republican fellow commissioners are trying to block many reforms she is willing to undertake, according to a recent Wall Street Journal article by Kara Scannell.
Continue reading "Is the SEC's Ineffectiveness the Result of Political Discord?" »
As reported in recent articles in Investment News, after the SEC filed fraud charges against Medical Capital Holdings Inc, the Financial Regulatory Authority indicated that it has “a number of investigations under way involving the allegations of wrongdoing arising from the sale of these ‘Reg D’ private placements.” Regulation D refers to the securities regulation that governs the sale of private-placement investments that don’t have to be registered with regulators.
Continue reading "Medical Capital Debacle Puts Private (Reg D) Offerings under the Microscope" »
The Wall Street Journal reported that the Securities and Exchange Commission will begin examining the marketing of retirement products known as target-date mutual funds. “SEC to Examine Marketing of ‘Target Date’ Funds,” Feb. 6, 2010, by Fawn Johnson.
The Commonwealth of Massachusetts Securities Division recently filed a Complaint (“Complaint”) that makes some startling allegations about Securities America’s actions in selling Medical Capital Notes. The collapse of the Medical Capital investments has left investors nationwide in the hole to the tune of about $1 billion.
Continue reading "Securities America Faces a New Wave of Medical Capital Problems" »
Brokerage industry lobbyists and SEC Chairman Mary Shapiro are trying to change draft legislation to water down duties owed by brokers to customers. Specifically, they are trying to persuade the Senate Banking Committee to eliminate provisions in a draft bill that would require brokers who provide investment advice to act in the best interest of their clients – that is, to act as fiduciaries. See Sara Hansard’s Feb. 7 InvestmentNews article, “Consumer groups say brokers may dodge fiduciary requirement.”
On January 11, 2010, the Financial Industry Regulatory Authority (FINRA), which is the so-called self-regulatory organization responsible for regulating brokerage firms’ sales practices, laid off five senior enforcement officials, according to a recent Wall Street Journal article by Suzanne Barlyn. They include Katherine Malfa, vice president and chief counsel of enforcement with nearly 20 years of service; Rory Flynn, vice president and chief litigation counsel; Evan Rosser, vice president of strategic planning, and Michael Armelin, an assistant director in the enforcement department, according to the article. The fifth enforcement official, from FINRA's New York office, wasn't identified.
There have been various developments over the past several weeks which investors may consider relevant in allocating their resources or evaluating alternatives that are available to them. Some of the more significant developments include, but are not limited to, the following:
• 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.
Continue reading "Page Perry's Market Monitor - February 5, 2010" »
The State Street Corporation’s recent settlement with the SEC provides a startling example of how large Wall Street firms abused their customers’ trust during the recent debacle in the financial markets. Simply stated, State Street hid important facts from most investors while secretly taking action to protect its own interests and those of a few select clients. Specifically, State Street told a few preferred investors in 2007 that one of its bond funds was almost entirely invested in subprime mortgage securities, allowing them to get out before the fund blew up. Simultaneously, other State Street customers were kept in the dark, costing them hundreds of millions of dollars.
FDIC Chairman to Congress: Regulators failed in their responsibilities to protect investors from the 2008 financial crisis.
Urging stricter oversight, Federal Deposit Insurance Corp Chairman Sheila Bair told Congress' Financial Crisis Inquiry Commission: "Not only did market discipline fail to prevent the excesses of the last few years, but the regulatory system also failed in its responsibilities," she said. "Record profitability within the financial services industry also served to shield it from some forms of regulatory second-guessing," Bair told the commission. Regulators were afraid "to take away the punch bowl.”
Continue reading "Failures in Financial Regulatory System Allowed Wall Street Firms to Run Wild" »
The Massachusetts Securities Division recently filed a complaint against Securities America related to its private offerings of Medical Capital Notes. The collapse of the Medical Capital investments has left investors nationwide in the hole to the tune of about $1 billion.
Continue reading "Evidence Against Securities America Mounts in Medical Capital Cases" »
Former Credit Suisse broker Eric Butler, who was convicted of fraud by a New York federal court jury in August, was sentenced last week to five years in federal prison. Along with former Credit Suisse colleague Julian Tzolov, Butler was accused of making misrepresentations in the sale of auction rate securities, claiming that they were backed by federally-insured student loans when in fact they were backed by high-risk collateralized debt obligations, or CDOs. Prosecutors alleged that Butler and Tzolov had switched their clients to the CDO-backed securities because they paid higher commissions.
Continue reading "Broker Sentenced for Fraud in Selling Auction Rate Securities Issued by CDO's" »
The SEC has adopted its much-anticipated final rule relating to custody by investment advisers. The final rule omits the "pop quiz," or surprise audit proposal, contained in the proposed rule for advisers who have custody solely by virtue of having the ability to deduct advisory fees. The Commission stated in the adopting release that it received more than 1,300 comment letters on the proposal, most of them relating to the pop quiz proposal.
Continue reading "SEC Adopts New Custody Rules For Investment Advisers" »
The President of the North American Securities Administrators Association, in testimony before the Financial Crisis Inquiry Commission last week, continued to blast the SEC and FINRA for dropping the ball. Denise Voigt Crawford said there is an "oversight gap" resulting from Congress stripping away substantial state regulatory oversight of brokers and advisors when it enacted the National Securities Markets Improvements Act in 1996. She urged Congress to return to the states all of the authority taken away by that law. If Congress acted on her request, the states would once-again have concurrent authority with the SEC over large investment advisers, like Bernie Madoff. She also urged Congress to return to the states power to oversee private placement offerings.
Continue reading "State Securities Commissioners Need More Authority to Fight Investment Fraud" »
The Wall Street Journal reported on January 15th that the major US banks are set to pay their employees record bonuses of approximately $145 billion for 2009. This staggering amount represents an 18% increase over bankers’ 2008 salaries. Wall Street tries to justify these huge bonuses by pointing out that there was an increase in bank revenues. The Journal projects that the top 38 banks and hedge funds generated about $449.6 billion in revenue for 2009, a 25% jump since 2007. Of course, Wall Street wouldn’t be earning any profits or revenues if not for government bailouts and capital injections. The Obama administration has paid attention to these record payouts and President Obama announced his proposal for a bank tax.
Continue reading "Does the Proposed Bank Tax Adequately Compensate Taxpayers for the Risks?" »
