Wednesday, March 22, 2017

Indecision Hampers SEC

President Donald J. Trump's unpredictability may extend to his appointment of Securities and Exchange Commissioner members, financial industry government relations officials said on Tuesday.

Traditionally, the SEC's five commissioners are split 3-2, with the majority representing the party in power in the White House. But Mr. Trump, who has nominated political independent Jay Clayton for SEC chairman, may switch things up.

Monday, March 13, 2017

Art Cashin warns that there's something ‘disturbing' happening in the market

Stocks may be trekking higher, but Wall Street trading veteran Art Cashin says there are looming risks to the market that could soon shake things up.

On CNBC's "Futures Now" last week, Cashin commented on how a "counter-intuitive" trend is appearing in the market with small-cap stocks.
The IWM, the small-caps stock tracking ETF, has lost almost all of its gains year to date. That trend is one the UBS director describes as "slightly disturbing," given how small-caps were predicted to rally under President Donald Trump.


Art Cashin warns that there's something ‘disturbing' happening in the market


Monday, February 27, 2017

SEC Wants All Investors to Access High Risk Investments.

In a startling about-face, Acting Securities and Exchange Commissioner Michael Piwowar called for allowing every investor to buy unregistered securities, regardless of their income, net worth, or ability to suffer the risk of loss.

The Issue


The discussion arises in the context of investing in private placements. Private placements are securities offerings of unregistered securities - they are not registered with the SEC and are generally not reviewed by any regulator before they are sold. Many of these offerings are high risk and the securities sold are typically illiquid.

It is because of that risk that companies are limited in who they can sell and solicit for these investments. Those restrictions generally work out so that firms do not accept investments from investors who are not "accredited." There are a number of types of accredited investors, but for individuals, they much have an annual income of $200,000 or more or a net worth of $1 million excluding their home. 

The accredited investor definition attempts to identify those persons whose financial sophistication and ability to sustain the risk of loss of investment or ability to fend for themselves remove the necessity for the protections of the '33 Act's registration provisions. While there are problems with the definition, the concept is sound. At the extremes, Bill Gates does not need to be protected in the same way your retired schoolteacher grandmother might be. 

Allowing companies to raise money without the costly registration process is fine - so long as the investors know and understand what the investment is, and what those risks are. The accredited investor definitions focus on financial information, and maybe a better test would be a review of actual investing experience, or maybe an investment test to qualify those sophisticated investors?

For now we are left with a financial test, which requires a balance. A narrow definition limits the number of investors and restrict the potential investor pool for business. A broad definition, would remove individuals who need the protection of the registration process, and would be nconsistent with the Commission’s investor protection mandate. It would also violate a basic tenet of the Securities Act by failing to provide investors in need of protection with adequate disclosures before they make an investment decision.

The Accredited Investor Definition


The definition of an accredited investor was introduced in 1982, and has not been changed, despite the effects of inflation over the years. However, the Dodd-Frank Act required the SEC to review the definition every 4 years.

The trend at the SEC is to limit the number of individuals who meet the requirements of an accredited investor, and, in theory, protect the investing public. For example, in December 2011, the SEC amended the definition to exclude the value of the investor's home, resulting in fewer investors meeting the net worth standard.

In December 2015 when the SEC Staff reviewed the definitions and made a number of recommendations, including the creation of new, additional inflation-adjusted income and net worth thresholds and to index all financial thresholds for inflation on a going-forward basis.

The SEC Chair's Comments


However, those changes may soon be coming to a halt. In a speech at a Practising Law Institute conference in Washington, Mr. Piwowar said that the restrictions on who can participate in private placements limits the returns and portfolio diversification of investors who are not defined as "accredited."

According to InvestmentNews.com, Mr. Piwowar said "[i]n my view, there is a glaring need to move beyond the artificial distinction between 'accredited' and 'non-accredited' investors," Mr. Piwowar also said. "I question the notion that non-accredited investors are truly protected by regulations that prevent them from investing in high-risk, high-return securities available only to the Davos jet-set."

While the definition certainly limits the investment choices of non-accredited investors, the reasoning behind the restriction remains sound. Or does it? It seems that Mr. Piwowar is claiming that the registration requirements of the securities laws for securities offerings do not do enough to protect investors. 

While I agree with him, that the registration requirements do little to protect investors and are a huge burden on small businesses and broker-dealers, is the answer to simply abandon investor qualifications and allow anyone to invest in high risk private placements? I like the concept of removing some of the paternalism that is inherent in the securities regulation web, but is this the position that the SEC should be taking? 

Conclusion


As InvestmentNews noted, democratizing the sale of unregistered securities can make investors with less financial werewithal vulnerable to losing money on the often risky ventures. Every review by the SEC Staff and Advisory Committees have recommending tightening the accredited investor definition, not removing it.

But here is Mr. Piwowar recommending changes to that Grandma can put her life savings into the latest technology private placement. Not a smart move by any stretch of the imagination.


Thursday, February 16, 2017

SEC News - Stolen Funds, Ponzi Scheme, Overbilling Clients


Financial Adviser Charged With Stealing From Client Accounts
An investment adviser representative has been charged with stealing approximately $5 million from client accounts by initiating unauthorized wire transfers and issuing checks to third parties to cover personal expenses.

Investment Adviser Charged With Stealing Investor Funds
A Connecticut-based investment advisory business and its owner have been charged with stealing money from investors to settle a private lawsuit among other misuses.

SEC Announces Charges in Hamilton Ticket Resale Ponzi Scheme
Fraud charges have been announced against two New York City men accused of running a Ponzi scheme with money raised from investors to fund businesses purportedly created to purchase and resell tickets to such high-demand shows as Adele concerts and the Broadway musical Hamilton.

Citigroup Paying $18 Million for Overbilling Clients
Citigroup Global Markets has agreed to pay $18.3 million to settle charges that it overbilled investment advisory clients and misplaced client contracts.

SEC Charges Two Former Och-Ziff Executives With FCPA Violations
Two former executives at Och-Ziff Capital Management Group have been charged with being the driving forces behind a far-reaching bribery scheme that violated the Foreign Corrupt Practices Act (FCPA).




The attorneys at Sallah Astarita & Cox include veteran securities litigators and former SEC Enforcement Attorneys. We have decades of experience in securities litigation matters, including the defense of enforcement actions. We represent investors, financial professionals and investment firms, nationwide. For more information call 212-509-6544 or send an email.

Wednesday, February 1, 2017

SEC News - Impeding Whistleblowers, Accounting Failures, Misuse of EB-5 Investments


Seal of the U.S. Securities and Exchange Commi...
Financial Company Charged With Improper Accounting and Impeding Whistleblowers
Seattle-based financial services company HomeStreet Inc. has agreed to pay a $500,000 penalty to settle charges that it conducted improper hedge accounting and later took steps to impede potential whistleblowers.


Company Settles Charges Over Undisclosed Perks and Improper Use of Non-GAAP Measures
New York-based marketing company MDC Partners has agreed to pay a $1.5 million penalty to settle charges that it failed to disclose certain perks enjoyed by its then-CEO and separately violated non-GAAP financial measure disclosure rules.

General Motors Charged With Accounting Control Failures
General Motors has agreed to pay a $1 million penalty to settle charges that deficient internal accounting controls prevented the company from properly assessing the potential impact on its financial statements of a defective ignition switch found in some vehicles.

Medical Device Company Charged With Accounting Failures and FCPA Violations
Texas-based medical device company Orthofix International has agreed to admit wrongdoing and pay more than $14 million to settle charges that it improperly booked revenue in certain instances and made improper payments to doctors at government-owned hospitals in Brazil in order to increase sales.

SEC Charges Businessman With Misusing EB-5 Investments
An Oakland, Calif.-based businessman has been charged for misusing money he raised from investors through the EB-5 immigrant investor program intended to create or preserve jobs for U.S. workers.



The attorneys at Sallah Astarita & Cox include veteran securities litigators and former SEC Enforcement Attorneys. We have decades of experience in securities litigation matters, including the defense of enforcement actions. We represent investors, financial professionals and investment firms, nationwide. For more information call 212-509-6544 or send an email.

Tuesday, January 31, 2017

SEC News - Internalization, Miscalculations, and FCPA Violations


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Citadel Securities Paying $22 Million for Misleading Clients About Pricing Trades
The SEC’s order finds that Citadel Execution Services suggested to its broker-dealer clients that upon receiving retail orders they forwarded from their own customers, it either took the other side of the trade and provided the best price that it observed on various market data feeds or sought to obtain that price in the marketplace. The process of taking the other side of the trade of the retail orders is known as “internalization.”

BNY Mellon Settles Charges Stemming From Miscalculations of Regulatory Capital Figures
BNY Mellon has agreed to pay a $6.6 million penalty to settle charges stemming from miscalculations of its risk-based capital ratios and risk-weighted assets reported to investors.

Biomet Charged With Repeating FCPA Violations
A Warsaw, Ind.-based medical device manufacturer has agreed to pay more than $30 million to resolve parallel SEC and Department of Justice investigations into the company’s repeat violations of the Foreign Corrupt Practices Act (FCPA).

ITG Paying $24 Million for Improper Handling of ADRs
Broker ITG has agreed to pay more than $24.4 million to settle charges that it violated federal securities laws when it prompted the issuance of American Depository Receipts (ADRs) without possessing the underlying foreign shares.

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The attorneys at Sallah Astarita & Cox include veteran securities litigators and former SEC Enforcement Attorneys. We have decades of experience in securities litigation matters, including the defense of enforcement actions. We represent investors, financial professionals and investment firms, nationwide, for decades. For more information call 212-509-6544 or send an email.

Monday, January 30, 2017

Wells Fargo to pay $35M to more than 500 black advisers over discrimination claims

 "The Wells Fargo case was brought by six black brokers who said in a revised complaint filed Friday in Chicago federal court that the bank “engaged in an ongoing nationwide pattern and practice of race discrimination.”



Wells Fargo to pay $35M to more than 500 black advisers over discrimination claims