When the now defunct SEC "hedge fund rule" was enacted, there was speculation that the Commission would extend the rule requiring the registration of certain hedge fund managers to the private equity and venture capital world. While there is certainly some overlap in these entities, one would have thought that the quashing of the rule would quash the talk.
Apparently not so. Last week there was an article in Investment News which raised the issue again, and now Dailyii.com has expanded the story.
The point of the Dailii.com story was that the collapse of Amaranth proved that current regulations work, but the story moved onto the issue of an expansion of the "hedge fund rule" to include venture capital funds and private equity funds.
In my humble opinion, that is a bit of a stretch, since the SEC cannot adequately perform its current function. Taking on registration of the hedge fund industry, and then adding venture capital and private equity will serve to weaken securities law enforcement, by diluting the efforts of an already overburdened Commission.
Thursday, September 28, 2006
NYSE Blames Increased Insider Trading on Hedge Funds
As the SEC struggles to find a way to legally regulate the hedge fund industry, there appear to be an increasing number of news articles which are negative to the industry. The latest is Dailyii.com reporting that the NYSE is expecting to refer 25% more insider trading cases to the SEC, and it says hedge funds may have something to do with the rise.
The SEC is clearly making a push to regulate the industry, and while they continue to attempt to make the case for regulation by these vague statements, they have not addressed the fact that they are simply do not have the staffing or budget to regulate the brokerage and mutual fund industry, nevermind the hedge fund industry.
The SEC's case for regulation is getting support from other sources. The Dailyii article makes reference to a study which discovered that four out of 10 mergers and acquisitions worth more than $1 billion had some "deviant trading behavior" before it, and quotes Professor John Coffee of Columbia University School of Law, who told the hearing that "intense competition" for better returns by hedge funds has resulted in more insider trading.
Interesting conclusions, but are there facts to support those conclusions? Insider trading cases are convoluted and often difficult to prove. While "deviant trading behavior" may be a sign of insider trading, it is also a sign of a volatile market, and it is difficult, if not impossible to conclude that such trading behavior is the result of insider trading, nevermind insider trading by hedge funds.
The SEC is clearly making a push to regulate the industry, and while they continue to attempt to make the case for regulation by these vague statements, they have not addressed the fact that they are simply do not have the staffing or budget to regulate the brokerage and mutual fund industry, nevermind the hedge fund industry.
The SEC's case for regulation is getting support from other sources. The Dailyii article makes reference to a study which discovered that four out of 10 mergers and acquisitions worth more than $1 billion had some "deviant trading behavior" before it, and quotes Professor John Coffee of Columbia University School of Law, who told the hearing that "intense competition" for better returns by hedge funds has resulted in more insider trading.
Interesting conclusions, but are there facts to support those conclusions? Insider trading cases are convoluted and often difficult to prove. While "deviant trading behavior" may be a sign of insider trading, it is also a sign of a volatile market, and it is difficult, if not impossible to conclude that such trading behavior is the result of insider trading, nevermind insider trading by hedge funds.
Wednesday, September 27, 2006
Settle to Avoid Suit, Get Sued Anyway?
I don't have any first hand information about this, but something is odd. The NYT is reporting that Spitzer's office has sued the mutual fund manager J. & W. Seligman & Company on Tuesday, contending that it owes investors $80 million in compensation for improper market-timing trades.
According to the Times, Seligman claimed that it only had 4 cases of market timing arrangements, repaid investors the damages from those arrangements and reduced its management fees going forward. Spitzer still required documents and testimony, and claims to have uncovered another 35 timing agreements for prior years, going back to 1998.
I'm not sure whether this is a case of unclear reporting, a vindictiveness by the government, or mis-reporting by the company, but something is certainly odd about this series of events.
In what might be a bit of nastiness, the suit also names Seligman's president, personally.
According to the Times, Seligman claimed that it only had 4 cases of market timing arrangements, repaid investors the damages from those arrangements and reduced its management fees going forward. Spitzer still required documents and testimony, and claims to have uncovered another 35 timing agreements for prior years, going back to 1998.
I'm not sure whether this is a case of unclear reporting, a vindictiveness by the government, or mis-reporting by the company, but something is certainly odd about this series of events.
In what might be a bit of nastiness, the suit also names Seligman's president, personally.
Tuesday, September 26, 2006
NASD Dispute Resolution Reorganizing
With arbitration filings down significantly (only 3,348 cases have been filed with NASDADR this year) there is a bit of a shuffle going on. The NASD announced last week that they were closing the Mid-Atlantic Regional Office (in Washington DC) and reorganizing their 68 hearing locations.
Thursday, September 21, 2006
NASD Fines MetLife $5 Million for "Inaccurate and Misleading" Information
Attention all brokers and registered persons. What do you think the NASD sanction against you would be if you provided "inaccurate and misleading" information to them? I know the answer, it is a permanent bar from the industry. Heck, if you put a false answer on your U-4 you will be barred.
But you are not a brokerage firm, nor are you a member of the NASD. Because if you were, it would be wrist slap time, not permanent bar time. The NASD just fined a group of subsidiaries of MetLife $5 million "for providing inaccurate and misleading information to NASD, allowing late trading of mutual funds, failing to produce e-mails in a timely fashion and other conduct that violates NASD's rules."
What? The late trading of mutual funds alone should generate a multi million dollar fine. You need to read the press release. The inaccurate information was in affirmative statements that the firm knew was inaccurate at the time the statement was made.
YOU would have your career taken away. MetLife pays a couple of bucks.
But you are not a brokerage firm, nor are you a member of the NASD. Because if you were, it would be wrist slap time, not permanent bar time. The NASD just fined a group of subsidiaries of MetLife $5 million "for providing inaccurate and misleading information to NASD, allowing late trading of mutual funds, failing to produce e-mails in a timely fashion and other conduct that violates NASD's rules."
What? The late trading of mutual funds alone should generate a multi million dollar fine. You need to read the press release. The inaccurate information was in affirmative statements that the firm knew was inaccurate at the time the statement was made.
YOU would have your career taken away. MetLife pays a couple of bucks.
Wednesday, September 20, 2006
Borg elected president of NASAA
Joseph Borg is back for a third stint as the President of the North American Securities Administrators Association. Mr. Borg, who originally hails from New York, is the Director of the Alabama Securities Commission, and was the NASAA president in 2001 and 2002.
Attorneys in HP Scandal Lawyer Up
What a mess, and what were they thinking? The HP scandal grows, and now the lawyers have lawyers, including outside counsel Larry Sonsini.
The combined weight of investigations by state prosecutors, federal regulators and the Department of Justice has forced lawyers in Hewlett-Packard's boardroom mess to get their own attorneys.
A 'Nonprosecution Agreement' by Any Other Name...
As if the nuances of corporate governance aren't tough enough to fathom, now the government is playing word games. On Aug. 28, Prudential Financial, Inc., signed what it thought was a nonprosecution agreement with Michael Sullivan, the U.S. Attorney in Boston. But once the deal was done, Deputy Attorney General Paul McNulty called a press conference in Washington, D.C., to trumpet the 'deferred prosecution agreement.'
The issue is more than mere semantics, since a deferred prosecution agreement is more damaging to the company than a non-prosecution agreement, and it should have been hashed out in the negotiations. However, it appears that both sides decided to call the agreement, simply, "the Agreement" not labeling it.
Now the name of the document is important, and both sides are arguing over what to call it. Why did they not call it something in the beginning?
The issue is more than mere semantics, since a deferred prosecution agreement is more damaging to the company than a non-prosecution agreement, and it should have been hashed out in the negotiations. However, it appears that both sides decided to call the agreement, simply, "the Agreement" not labeling it.
Now the name of the document is important, and both sides are arguing over what to call it. Why did they not call it something in the beginning?
Morgan Stanley earnings soar 59 pct - Yahoo! News
You gotta love the brokerage business. Earnings up 59%, net income at 1.85 billion for the third quarter.
Broker-dealers hurting for pros in compliance - September 18, 2006 - Dan Jamieson - InvestmentNews
We have noticed in our practice an upswing in our broker-dealer compliance work. Firms are increasingly calling upon our firm, and we assume others, to address internal compliance issues. We learned today that it is not just us - there is a shortage of compliance personnel - Broker-dealers hurting for pros in compliance - September 18, 2006 - Dan Jamieson - InvestmentNews: "Broker-dealers hurting for pros in compliance"
Tuesday, September 19, 2006
Princeton Researchers Hack Diebold Voting Machine
Well, this looks like the beginning of the end of the Diebold voting machine. Princeton University researchers have successfully hacked the machine, and claim that anyone can install vote stealing software on the machine in ONE MINUTE. The software is completely undetectable according to the research paper.
They have a video showing them corrupting an election, as well as their research on their site.
A summary:
They have a video showing them corrupting an election, as well as their research on their site.
A summary:
This paper presents a fully independent security study of a Diebold AccuVote-TS voting machine, including its hardware and software. We obtained the machine from a private party. Analysis of the machine, in light of real election procedures, shows that it is vulnerable to extremely serious attacks. For example, an attacker who gets physical access to a machine or its removable memory card for as little as one minute could install malicious code; malicious code on a machine could steal votes undetectably, modifying all records, logs, and counters to be consistent with the fraudulent vote count it creates. An attacker could also create malicious code that spreads automatically and silently from machine to machine during normal election activities — a voting-machine virus. We have constructed working demonstrations of these attacks in our lab. Mitigating these threats will require changes to the voting machine's hardware and software and the adoption of more rigorous election procedures.
Wednesday, September 13, 2006
Hewlett-Packard chair to step down
She is resigning at the end of the year over the brewing scandal regarding the investigation of telephone records of employees, but the California AG warned that company insiders are likely to face criminal charges.
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Thursday, September 7, 2006
No Problem with Data Collection and Privacy?
It seems to me that too many people are unconcerned about the erosion of our privacy rights, and the data collection that is going on every minute of every day - not only by the government, but by private businesses. My point in all of this, aside from the simple and obvious constitutional violations when the government is involved is that the collection of such data is dangerous because that data will be abused.
And now it starts, Hewlett Packard is being investigated for purchasing, reviewing and investigating the private cell phone records of its own board members. Folks are calling for the head of HP Chairwoman Patricia Dunn, criminal charges are being considered. California Attorney General Bill Lockyer said "I don't have a settled view on whether it was illegal yet, but it certainly was colossally stupid."
Other comments from the article
Still think the government employees are not going to abuse the records that they have to further their own political, business or personal interests? Are the days of Watergate, Hoover and domestic spying so far behind us that we have forgotten how far government and business leaders will go to further their own agenda?
And now it starts, Hewlett Packard is being investigated for purchasing, reviewing and investigating the private cell phone records of its own board members. Folks are calling for the head of HP Chairwoman Patricia Dunn, criminal charges are being considered. California Attorney General Bill Lockyer said "I don't have a settled view on whether it was illegal yet, but it certainly was colossally stupid."
Other comments from the article
Peter Morici, professor at the Professor Robert H. Smith School of Business at the University of Maryland: If the chairman thinks this is the way business ought to be conducted, maybe it's time for her to take a sabbatical. It's arrogant and inappropriate.
John W. Dienhart, business ethics professor at Seattle University: This sends a message to employees that the company is willing to do just about anything to protect itself... [t]his sends a bad message to existing employees, and it's bad for attracting good employees from outside the organization.
Still think the government employees are not going to abuse the records that they have to further their own political, business or personal interests? Are the days of Watergate, Hoover and domestic spying so far behind us that we have forgotten how far government and business leaders will go to further their own agenda?
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