HealthSouth Settles Securities Fraud Claims for $445 Million

Lerach Coughlin Stoia Geller Rudman & Robbins LLP as Co-Lead Counsel for the Central States Southeast and Southwest Area Pension Funds and Labaton Sucharow & Rudoff LLP as Co-Lead Counsel for the New Mexico State Investment Council and the Educational Retirement Board of New Mexico, announced today that they have reached a landmark $445 million settlement agreement in the federal securities class action lawsuit to settle litigation filed against HealthSouth, certain of its former directors and officers and certain other parties in the United States District Court for the Northern District of Alabama relating to allegations of massive securities fraud and related activity that occurred at the company during periods ended in March 2003.

Merrill Lynch Settles 23 Class Action Suits for $164 Million

From the AP - "Merrill Lynch & Co. Inc. will pay $164 million to settle 23 class action lawsuits related to its analysts' activities and research coverage of Internet companies during the boom and bust of the dot-com era, the company said Friday in a regulatory filing. "

Is SOX Unconstitutional?

Sarbanes-Oxley was a hastly conceived and enacted law which was rushed through without adequate discussion, and is causing problems that the haste did not forsee. That is not to say that SOX is all bad, there has been some good results from it, but parts of it have caused problems.

Professor Bainbridge in his blog discusses pending challenges to SOX, including a claim that the Public Company Accounting Oversight Board (PCAOB) is unconstitutional.

NASD Sued Over Test Error

It didn't take long - a Series 7 test-taker who was told by the NASD that he failed the exam when he didn't, has sued the NASD, claiming that he couldn't get a job, and lost wages because of their error. He is seeking class action status for his suit. There are close to 2,000 people who were effected by the NASD's error. The original story is here.

Morgan Stanley to Pay 15 Million for Lost Emails

It is not on the SEC site yet, but Bloomberg is reporting that Morgan Stanley has agreed to pay 15 million dollars to settle an SEC investigation into its failure to preserve emails. The disclosure was apparently made in a regulatory filing, which also noted that it was resolving related charges with the NASD.

For Brokers, Leaving Just Got Easier

Brokers who change firms with a restrictive covenant in place know the drill - you leave, your old firm sues and tries to get an injunction against you to prevent you from moving your clients. The so-called pact by some of the major firms two years ago did not stop the practice of attempting to enforce the injunction and keep the clients.

There are various defenses that brokers can use in such cases, but one that has some success is the doctrine of "unclean hands." In essence, the broker argues that his old firm recruited him, and encouraged him to move his clients. In fact, the argument goes, that is exactly what the firm does with its lateral hires, and it is now attempting to stop the exact same practice by a competitor.

The defense is not easy, since there are usually contract issue involved, but it just got easier. A federal court judge in Washington DC denied a request for an injunction by a firm on grounds of "unclean hands" and the US Court of Appeals just affirmed that decision.

Quoting from the original decision:

What finally tips the scale in favor of the defendants is their undisputed assertion that H&R Block’s standard operating procedure for recruitment and hiring instructs and encourages just the kind of behavior about which H&R Block is now complaining.”

The decision actually extends the doctrine of unclean hands since there was no evidence that the customers of these reps were encouraged to move, but rather that H&R Block engaged in such practices generally.

I can think of two major wirehouses who are not going to be happy with this ruling.


The full story is at Registered Rep - For Brokers, Leaving Just Got Easier

RIM unveils plan to keep BlackBerrys alive - Yahoo! News

Just two words - thank goodness.

I don't think I could survive crackberry withdrawal.

AIG settles for over $1.6 bln -

800 million dollars to the SEC, which is earmarked to go back to investors, and 800 million dollars to the State.

The civil and criminal cases against the individuals continue, and the SEC says that they are continuing to investigate other individuals.

CNN.com - Hurt soldier billed for gear to be repaid - Feb 8, 2006

Sorry to clog everything up with this, but fair is fair. After the outrage on the blogs about the soldier who was being forced to pay for his body armor, CN is reporting that the armed forces have taken a second look and have proclaimed 'There is no question that [Rebrook] should not have to pay for the body armor of his that was destroyed in Iraq"

Ok, so why did it take a nation of bloggers to get you to say that.

Kudos again to Americablog for not only alerting everyone to the issue, but for raising the money for this soldier.

How to Kick a Fund's Tires

BusinessWeek Online has a great article this morning with tips on how to avoid hidden fees and to investigate a mutual fund before investing.

Seasoned investors may find this old news, but the vast majority of the investing public would do well to take a few minutes reading this, and then following up on their own funds.

Army Forces Wounded Soldier to Pay for Destroyed Body Armor

I try to stay away from politics here, but this just annoys me to no end. Last week the Joint Chiefs of Staff last week were upset about a newspaper cartoon which criticized Rumsfeld's treatment of the army. The Joint Chiefs clearly missed the point of the cartoon, and objected to the cartoon, which featured a limbless soldier (depicting the army) in a hospital bed. The Joint Chiefs objected to the 'callous depiction of those who have volunteered to defend this nation, and as a result, have suffered traumatic and life-altering wounds."

Perhaps they have a point, or maybe they should review the political cartoon and just "get" political cartoons. The original story is here. However, while objecting to the "callous depiction" of a soldier, we have an outrageous example of the armed forces' own callous treatment of those who have volunteered to defend this nation, and as a result have suffered traumatic and life-altering wounds.

The Charleston Gazette is reporting that a soldier in Iraq, who was honorably discharged last week because of an arm injury sustained in battle, was forced to pay $700 for body armor that was destroyed when he was hit by a roadside bomb in Iraq.

What? The Joint Chiefs are outraged at the depiction of a cartoon soldier yet have no concern for a real soldier who has suffered real wounds? And we are making him pay for their body armor that a medic pulled off of him in the field as part of the effort to save his life?

The outrage did hit the internet, and liberal blogger John Aravosis at Americablog ran with the story, and raised $5,000 for this soldier in 2 hours at his web site.

Kudos to Americablog and the Charleston Gazette.

AIG Settlement Rumors

Reuters is reporting that AIG may have settled with Spitzer and the SEC for a reported 1.5 billion dollars.

Former General Re and AIG Officers Indicted

In a move that is being viewed as an attempt to pressure the executives to turn on other corporate officers, a federal grand jury indicted former General Re Corp. CEO Ronald Ferguson, former Gen Re Chief Financial Officer Elizabeth Monrad and the reinsurer's former assistant general counsel, Robert Graham, charging they conspired to commit fraud. Also indicted was Christian Milton, formerly AIG's vp-reinsurance.

The SEC also has filed a civil suit against the four individuals, as well as retired Gen Re Senior Vp Christopher Garand, charging them with aiding and abetting securities fraud.

According to press reports, the indictment notes that "additional co-conspirators, not named as defendants herein, included senior-level executives at AIG and Gen Re."

Hedge Fund Adviser Registration Arrives

I've commented before on the new hedge fund manager rules. I thought that they were a mistake and premised on questionable logic and facts. The blog entry with links to the earlier commentary is here

Now that the registration deadline has arrived, there are approximately 1,800 managers that have registered - out of the 8,000 that are believed to exist.

Truth on the Market - the new blog from a group of professors, takes a look at the new registrations here and here, and asks a great question:

...if the SEC truly believes additional regulation is warranted and adviser registration is the right answer, why did they draft rules that appear to result in less than 25% of hedge fund advisers registering?

Hmm, why indeed.

And the SEC now plans to inspect the high risk managers once every three years? And the purpose of this bureaucratic nonsense was that oversight would help prevent fraud? Sure, after it has gone on for three years........sheesh.

NASD Investigating Hedge Fund Sales to Small Investors

Back when the SEC decided, on some very questionable grounds, to start regulating hedge fund managers, a constant theme in the Commission's analysis was the "retailization" of hedge funds. I commented then that if in fact hedge funds were being sold to Mom and Pop, there was no need for additional regulation, since such sales would violate the fund's private placement exemptions. I suggested looking into that aspect of the supposed retail sales, and enforcing existing rules.

It appears that this is what the NASD is doing - enforcing existing rules rather than creating new ones. The NASD cannot go to the hedge funds themselves, they do not have jurisdiction over the funds, so the NASD is coming at the issue from a different direction - it is looking at hedge fund recommendations to individual investors at major retail firms.

It is pretty clear that if hedge funds are being retailed to the average investor to any significant degree, the NASD should find a significant number of such trades, and many of those trades will be unsuitable for those investors.

On the other hand, if the sales are to sophisticated investors, the trades will be suitable, and there will be no problem with the sales, or the "retailization" of hedge funds.

Nice to see a regulator approaching an issue in a rational way.

Now if we can only get the SEC to admit the folly of its "hedge fund" registration rule.