Friday, December 29, 2006
Stock Markets to Close for Ford Funeral
The NYSE announced that it will be closed for trading on Tuesday, January 2, 2007 as part of a national day of mourning over the death of former President Gerald Ford.
Ryan Beck To Be Acquired
The firms will not confirm the rumor, but various publications are reporting that Ryan Beck will be sold to St. Louis-based Stifel Nicolaus
Saturday, December 23, 2006
Loser Pays?
The decision in the Enron Class Action, where Judge Harmon ordered a class action firm to pay Alliance's legal fees, is getting big play in the press. A Wall Street Journal editoral was unabashed in its praise:
"Wretched excess" is, at a minimum, hyperbole, but what is it that makes some commentators so crazy over a loser pays decision. Sure, the class action bar is currently the favored whipping-post for the press, and there certainly have been some excesses in that arena. But is loser pays really such a great idea?
As a defense lawyer, I should be in favor of loser pays, and there is a terrible temptation to endorse it. However, it is undoubtedly not good for society. Too many benefits have been derived from the little guy taking on the big guy. While loser pays is often proclaimed to be the savior of tort reform, it is the little guy who loses in loser pays. What individual plaintiff is going to sue corporate america if he runs the risk of paying the legal fees if he is not successful?
Plus, today's winner is often tomorrow's loser.
Update: Apparently that editorial is creating a storm of its own. Lerach, who is representing the shareholders, fired back with his own editorial, and while the WSJ printed his letter, it has apparently overlooked the fact that Alliance waived the award of legal fees in return for an agreement not to appeal the ruling.
The roundup is at the WSJ Blog, and thanks to 10b-5 Daily for alerting us to the posts.
One reason the tort bar files so many frivolous lawsuits is that there have been very few penalties for its legal abuses. So congratulations are due to a Texas judge who last week ordered class-action kingpin Bill Lerach to pay up for his latest wretched excess
"Wretched excess" is, at a minimum, hyperbole, but what is it that makes some commentators so crazy over a loser pays decision. Sure, the class action bar is currently the favored whipping-post for the press, and there certainly have been some excesses in that arena. But is loser pays really such a great idea?
As a defense lawyer, I should be in favor of loser pays, and there is a terrible temptation to endorse it. However, it is undoubtedly not good for society. Too many benefits have been derived from the little guy taking on the big guy. While loser pays is often proclaimed to be the savior of tort reform, it is the little guy who loses in loser pays. What individual plaintiff is going to sue corporate america if he runs the risk of paying the legal fees if he is not successful?
Plus, today's winner is often tomorrow's loser.
Update: Apparently that editorial is creating a storm of its own. Lerach, who is representing the shareholders, fired back with his own editorial, and while the WSJ printed his letter, it has apparently overlooked the fact that Alliance waived the award of legal fees in return for an agreement not to appeal the ruling.
The roundup is at the WSJ Blog, and thanks to 10b-5 Daily for alerting us to the posts.
Fight over NASD-NYSE regulatory merger escalates
A Reuters story reports that the FIA claims that it has enough support to derail the merger between the NYSE and the NASD and charged regulators with trying to steer votes.
An NASD survey found that 43 percent of the firms polled favored the plan, 14 percent were against, and the remainder were undecided. While the NASD spins that poll to claim that "there is strong support among firms that have made a decision about consolidation," the key phrase is "that have made a decision. Another way to look that those numbers is that 57% of the firms have not decided, or are against the plan.
One former NASD director had an interesting quote in the article:
Small firms are skeptical of the benefits to them, and without an explanation and a chance for input and discussion, who can blame them?
An NASD survey found that 43 percent of the firms polled favored the plan, 14 percent were against, and the remainder were undecided. While the NASD spins that poll to claim that "there is strong support among firms that have made a decision about consolidation," the key phrase is "that have made a decision. Another way to look that those numbers is that 57% of the firms have not decided, or are against the plan.
One former NASD director had an interesting quote in the article:
I don't think NASD anticipated this would trigger as organized and perhaps as loud a response," Wolper said. "A lot of member firms are somewhat distrustful of NASD.It's always about trust. And can you really blame small firms for not immediately trusting the NASD? While the merger is undoubtedly good for the industry and the firms, this merger moved from concept to announcement to vote at lightening speed, with little or no discussion.
If somebody is telling things feeding that distrust, then they might be more willing to say: 'I'm not necessarily voting no forever, but maybe just for now until I get more information"
Small firms are skeptical of the benefits to them, and without an explanation and a chance for input and discussion, who can blame them?
Wednesday, December 20, 2006
Email Storage and Retrieval Lessons from Morgan Stanley
Email storage and retrieval is a big deal. A very big deal. Whether you are a two man shop or a national wirehouse you must do real-time storage of emails coming into and out of your firm. You must store them correctly and you must be able to retrieve them in a reasonable time period.
Morgan Stanley has become the poster-boy of email retrieval problems. Most will recall that Morgan Stanley lost a case against Ron Pearlman based in large part on its inability to retrieve emails, and was then fined $15 million dollars for email storage issues by the SEC. On the heels of that followed a class action against Morgan Stanley on behalf of arbitration claimants, who are suing because Morgan could not produce emails during their hearings.
At that point in time, last year, email storage and retrieval had cost Morgan Stanley a $1.45 billion jury verdict in favor of Ron Pearlman, a $15 million SEC fine and a class action complaint. Not to mention the impact that the email fiasco had on its ongoing litigation and arbitration matters. I can hear the claimants' attorneys screaming over missing emails and "intentional destruction of evidence" even as I type this.
This is all pretty significant stuff. Email is important, and Morgan has had some significant problems and costs over the issue.
But there is still more. Today we find the announcement "NASD Charges Morgan Stanley DW with Repeatedly Failing to Provide Emails to Arbitration Claimants and Regulators."
The NASD alleges that Morgan falsely represented that its emails had been destroyed in the September 11 Attack - it made that representation, and then found that the emails did in fact exist, on backup tapes and on individual computers. The NASD also alleges that Morgan Stanley later destroyed many of the emails it did possess, by overwriting backup tapes that had been used to restore the emails to the firm’s system and by allowing users of the firm’s email system to permanently delete the emails over an extended period of time. As a result, the complaint alleges, that between September 2001 and March 2005, millions of the emails were destroyed.
NASD’s complaint also alleges that Morgan Stanley violated NASD rules by failing to produce email in its possession in numerous customer arbitration proceedings over the three-and-a-half year period, and by making misrepresentations that it did not have such email in numerous proceedings. The complaint also charges Morgan Stanley with violating NASD rules by failing to produce the email to a number of regulators, including NASD, and by falsely representing that the email had been destroyed.
While we have no direct knowledge of the events, and posted this to demonstrate the perils of not paying attention to email storage and retrieval, it certainly seems that this is overkill. While the Pearlman litigation has no impact on the regulatory concerns, an SEC investigation and a 15 million dollar fine is not an insignificant event.
Now the NASD is coming back again, for the same underlying conduct? I will admit, the false representation allegation causes me some concern, over and above the email issue, but I have seen regulatory agencies label statements that were thought to be true when made, as false representations, and this might just be another instance of an exaggerated pleading.
But another regulatory action over the same conduct? When does it stop? Does the State of Connecticut now commence an action? Then NY, and Utah, followed by Alabama?
Morgan Stanley certainly screwed up email storage and retrieval. They paid the litigation price, and paid a significant fine. Keeping in mind the lost and missing emails are from a time when most firms did not have a clue as to what they were supposed to be doing, if anything, with email correspondence, the timing should be a mitigating factor, and there is no benefit to forcing it to defend itself once again.
The overlapping regulators is a significant concern, one which will be lessened in the future with the NASD/NYSE merger. But the underlying point is - store your emails, in WORM format, when they are sent or received, away from the sender's computer, and make sure you can retrieve them, by author, sender, and keywords.
Morgan Stanley has become the poster-boy of email retrieval problems. Most will recall that Morgan Stanley lost a case against Ron Pearlman based in large part on its inability to retrieve emails, and was then fined $15 million dollars for email storage issues by the SEC. On the heels of that followed a class action against Morgan Stanley on behalf of arbitration claimants, who are suing because Morgan could not produce emails during their hearings.
At that point in time, last year, email storage and retrieval had cost Morgan Stanley a $1.45 billion jury verdict in favor of Ron Pearlman, a $15 million SEC fine and a class action complaint. Not to mention the impact that the email fiasco had on its ongoing litigation and arbitration matters. I can hear the claimants' attorneys screaming over missing emails and "intentional destruction of evidence" even as I type this.
This is all pretty significant stuff. Email is important, and Morgan has had some significant problems and costs over the issue.
But there is still more. Today we find the announcement "NASD Charges Morgan Stanley DW with Repeatedly Failing to Provide Emails to Arbitration Claimants and Regulators."
The NASD alleges that Morgan falsely represented that its emails had been destroyed in the September 11 Attack - it made that representation, and then found that the emails did in fact exist, on backup tapes and on individual computers. The NASD also alleges that Morgan Stanley later destroyed many of the emails it did possess, by overwriting backup tapes that had been used to restore the emails to the firm’s system and by allowing users of the firm’s email system to permanently delete the emails over an extended period of time. As a result, the complaint alleges, that between September 2001 and March 2005, millions of the emails were destroyed.
NASD’s complaint also alleges that Morgan Stanley violated NASD rules by failing to produce email in its possession in numerous customer arbitration proceedings over the three-and-a-half year period, and by making misrepresentations that it did not have such email in numerous proceedings. The complaint also charges Morgan Stanley with violating NASD rules by failing to produce the email to a number of regulators, including NASD, and by falsely representing that the email had been destroyed.
While we have no direct knowledge of the events, and posted this to demonstrate the perils of not paying attention to email storage and retrieval, it certainly seems that this is overkill. While the Pearlman litigation has no impact on the regulatory concerns, an SEC investigation and a 15 million dollar fine is not an insignificant event.
Now the NASD is coming back again, for the same underlying conduct? I will admit, the false representation allegation causes me some concern, over and above the email issue, but I have seen regulatory agencies label statements that were thought to be true when made, as false representations, and this might just be another instance of an exaggerated pleading.
But another regulatory action over the same conduct? When does it stop? Does the State of Connecticut now commence an action? Then NY, and Utah, followed by Alabama?
Morgan Stanley certainly screwed up email storage and retrieval. They paid the litigation price, and paid a significant fine. Keeping in mind the lost and missing emails are from a time when most firms did not have a clue as to what they were supposed to be doing, if anything, with email correspondence, the timing should be a mitigating factor, and there is no benefit to forcing it to defend itself once again.
The overlapping regulators is a significant concern, one which will be lessened in the future with the NASD/NYSE merger. But the underlying point is - store your emails, in WORM format, when they are sent or received, away from the sender's computer, and make sure you can retrieve them, by author, sender, and keywords.
Saturday, December 16, 2006
New Year, New Look
With the new year approaching, we thought that the old blue and green layout was getting a bit tired looking, so we are experimenting with new templates for the blog.
Please pardon the confusion.
Please pardon the confusion.
Friday, December 15, 2006
The New Insider Trading
Insider trading has always been intriguing for me, since the mid 80's when I was part of the defense team in what became a leading case in the law of insider trading - SEC vs. Materia. The legal gymnastics of the misappropriation theory are interesting, the effects of insider trading are interesting, and the predictive value of volume movements is interesting. Insider trading, the legal, and the illegal, is interesting to me, on a significant number of levels.
Add to that my professional interest in the regulation of hedge funds and investment advisors, and I was very intrigued by a recent post at Professor Bainbridge's Business Associations Blog - "Politicians tipping Lobbyists who tip Hedge Funds."
There are apparently allegations floating around that Capitol Hill lobbyists get tips about pending legislation from legislators, which the lobbyists then sell to hedge fund managers who use the information to trade in the stock of affected companies.
Legal or Illegal? My take is that it is legal, since nothing is "misappropriated" and I am not aware of any confidentiality provisions regarding pending legislation, or any requirement that a politician keep such information secret, which would be the start of the misappropriation analysis.
Professor Bainbridge disagrees, and provides an interesting analysis in his post.
Add to that my professional interest in the regulation of hedge funds and investment advisors, and I was very intrigued by a recent post at Professor Bainbridge's Business Associations Blog - "Politicians tipping Lobbyists who tip Hedge Funds."
There are apparently allegations floating around that Capitol Hill lobbyists get tips about pending legislation from legislators, which the lobbyists then sell to hedge fund managers who use the information to trade in the stock of affected companies.
Legal or Illegal? My take is that it is legal, since nothing is "misappropriated" and I am not aware of any confidentiality provisions regarding pending legislation, or any requirement that a politician keep such information secret, which would be the start of the misappropriation analysis.
Professor Bainbridge disagrees, and provides an interesting analysis in his post.
Change in Hedge Fund Investor Criteria Approved
In its recent meeting, the SEC approved a proposal to add a new criteria for hedge fund investing. In addition to the $200,000/$1 million floor, the Commission will add a requirement that the investor has at least $2.5 million in assets to be eligible to invest in hedge funds - excluding real estate investments.
The Commission also approved additional anti-fraud rules for hedge funds, which might be more of a political, face-saving move than substance, since the anti-fraud provisions of the various securities acts already apply to hedge funds. We have not seen the proposals yet, but various media outlets are reporting that the new regulations will limit, or eliminate, side letters.
The Commission also approved additional anti-fraud rules for hedge funds, which might be more of a political, face-saving move than substance, since the anti-fraud provisions of the various securities acts already apply to hedge funds. We have not seen the proposals yet, but various media outlets are reporting that the new regulations will limit, or eliminate, side letters.
John Mack - Biggest. Bonus. Ever.
With Morgan Stanley having a record year, many would say he deserves it. CEO John Mack received a $40 million bonus in stock and options -- the largest bonus ever given to a Wall Street boss.
Tuesday, December 12, 2006
NASAA Reports Increased Enforcement Activity
The North American Administrators Association released its 2006 enforcement action statistics today, showing an increase in the number of actions, the amount of fines, and the periods of incarcertion.
NASAA reported that there were 3,635 enforcement actions, up 23 percent from the earlier period. Money ordered returned to investors (including restitution, rescission, and disgorgement) increased 38 percent to $911 million from $660 million during the previous period. Years of incarceration as a result of securities law convictions rose 30 percent to a cumulative 935 years, compared to 718 years in the previous reporting period.
If anyone has the thought that the states are not active in enforcement actions, these statistics demonstrate otherwise.
Which brings up another point - with 53 regulators reviewing your conduct, who is your securities attorney?
NASAA reported that there were 3,635 enforcement actions, up 23 percent from the earlier period. Money ordered returned to investors (including restitution, rescission, and disgorgement) increased 38 percent to $911 million from $660 million during the previous period. Years of incarceration as a result of securities law convictions rose 30 percent to a cumulative 935 years, compared to 718 years in the previous reporting period.
If anyone has the thought that the states are not active in enforcement actions, these statistics demonstrate otherwise.
Which brings up another point - with 53 regulators reviewing your conduct, who is your securities attorney?
SRO Merger - One Step Forward, One Back
It seems that the merger of the regulatory arms of the NASD and the NYSE is going to come down to the support of the little guy. Small firms have been complaining about the effects of the merger on their voice in the new organization. Small firms have notoriously been under-represented at the NASD. Small firm owners are concerned that the structure of the new organization will make matters worse.
That debate is getting a bit heated. Yesterday, Investment News reported that the NASD has blasted the Financial Industry Association's effort to collect votes against bylaw changes needed to consolidate NASD and NYSE regulatory units. The FIA has been collecting irrevocable proxies from member firms, to vote on the bylaw changes that are needed to go ahead with the merger. The NASD responded with an unsigned message that said asking for irrevocable proxies was an "unusual request." The NASD is urging its members to approve the merger, arguing that the move would improve efficiency and allow members to retain a voice on the new SRO.
It is all going to come down to the queston of what the voting structure will be at the consolidated entity, as small firms cannot afford to lose any more representation in the regulatory body.
Reading between the lines, it appears that the small firm movement may be gaining steam. Today Dan Jamison's article at Investment News reports that the NASD has obtained the approval of the small firms committee of the Securities Industry and Financial Markets Association of New York and Washington today sent a letter to more than 280 small firm SIFMA members saying that the consolidation would improve efficiency and give smaller firms more of a voice than they have now at NASD.
More information is going to be needed. The benefits of the consolidation will be greater for the larger firms, many of whom are members of both the NASD and the NYSE. Eliminating a regulator will reduce their costs. But smaller firms typically are not members of the NYSE, and for them the merger threatens their already weak voice in the self-regulatory arena.
That debate is getting a bit heated. Yesterday, Investment News reported that the NASD has blasted the Financial Industry Association's effort to collect votes against bylaw changes needed to consolidate NASD and NYSE regulatory units. The FIA has been collecting irrevocable proxies from member firms, to vote on the bylaw changes that are needed to go ahead with the merger. The NASD responded with an unsigned message that said asking for irrevocable proxies was an "unusual request." The NASD is urging its members to approve the merger, arguing that the move would improve efficiency and allow members to retain a voice on the new SRO.
It is all going to come down to the queston of what the voting structure will be at the consolidated entity, as small firms cannot afford to lose any more representation in the regulatory body.
Reading between the lines, it appears that the small firm movement may be gaining steam. Today Dan Jamison's article at Investment News reports that the NASD has obtained the approval of the small firms committee of the Securities Industry and Financial Markets Association of New York and Washington today sent a letter to more than 280 small firm SIFMA members saying that the consolidation would improve efficiency and give smaller firms more of a voice than they have now at NASD.
More information is going to be needed. The benefits of the consolidation will be greater for the larger firms, many of whom are members of both the NASD and the NYSE. Eliminating a regulator will reduce their costs. But smaller firms typically are not members of the NYSE, and for them the merger threatens their already weak voice in the self-regulatory arena.
Tom DeLay's New Blog
While he is certainly not one of my favorite politicans, Tom DeLay has started a blog. In his opening post he said
Great idea though. If he is really writing it, and really reading it, it should make for a very interesting blog. It will be interesting to see if a disgraced politican can revive his career through a blog.
I have created this blog in order to provide Americans with a new meeting place where such opinions and viewpoints might be better shared, discussed, and debated; a place where conservative Americans might really speak truth to power and to one another.The blog world did not welcome him to their world, as the comments were fast and furious on his blog. He then he proceeded to delete 111 comments that he apparently did not like. So much for discussion, opinions and viewpoints. Someone save the comments though, and has re-posted them here.
Great idea though. If he is really writing it, and really reading it, it should make for a very interesting blog. It will be interesting to see if a disgraced politican can revive his career through a blog.
Tuesday, December 5, 2006
Escape From Wall Street
Another example of the problems with the ill-conceived, and hastily enacted SOX Legislation - How Congress put Hong Kong and London in a position to surpass New York as a financial capital
Monday, December 4, 2006
Merger Bashing
Damn the facts, full speed ahead. The opposition to the merger of the NYSE and NASD enforcement divisions continues. The St. Lousi Post-Dispatch has a post bashing the merger as being good for bad brokers, and bad for customers.
Calling the NASD and NYSE regulators "Deputy Dog meets Scooby Doo", "hapless", "inadequate" and a case of the fox guarding the hen house, the article demonstrates a complete lack of understanding of the securities regulatory process, or a refusal to acknowledge the process.
The post is consumed with the concept that two overlaping regulators with duplicate rules is better than one consolidated regulator, with the same level of staffing, and one set of rules.
They do mention, in passing, that Joseph Borg, the President of the NASAA, and one of the toughest state regulators in the country, gave the merger his "blessing" but then promply ignore that fact.
The reality is that we will all have to wait and see the actual proposal before bashing it, or praising it. At first glance, a consolidated regulatory agency will be more efficient, and have more funds at its disposal, which should be a benefit to the industry and the investing public.
Calling the NASD and NYSE regulators "Deputy Dog meets Scooby Doo", "hapless", "inadequate" and a case of the fox guarding the hen house, the article demonstrates a complete lack of understanding of the securities regulatory process, or a refusal to acknowledge the process.
The post is consumed with the concept that two overlaping regulators with duplicate rules is better than one consolidated regulator, with the same level of staffing, and one set of rules.
They do mention, in passing, that Joseph Borg, the President of the NASAA, and one of the toughest state regulators in the country, gave the merger his "blessing" but then promply ignore that fact.
The reality is that we will all have to wait and see the actual proposal before bashing it, or praising it. At first glance, a consolidated regulatory agency will be more efficient, and have more funds at its disposal, which should be a benefit to the industry and the investing public.
Broker Overtime Quandry
The whole controversy over broker overtime has always been a bit of an enigma. Stock brokers are professionals, and certainly do not want to be considered hourly wage earners. Yet here they are, taking millions of dollars, collectively, from the wirehouses, through settlements of class actions because they were not paid overtime. In fact, that is the underlying legal theory - brokers are not professionals.
Before anyone jumps on me, I understand the legal issue, I don't understand the political, or public relations issue. It is not good for brokers. And does anyone have a handle on how much money the average class member received in these class actions?
What is even more puzzling is the fact that the Department of Labor is having a tough time with the legal issue. In this month's issue of Registered Rep, Halah Touryalai has a story reporting that the DOL issued an eight-page letter in responding to the SIA inquiry as to whether registered reps are, in fact, entitled to overtime pay.
According to the article, registered reps are not covered by Fair Labor Standards Act of 1938 under the “administrative exemption" and thus are not entitled to overtime. However, in the same letter the DOL indicates in a footnote that if a rep’s “primary duty is selling investments to clients” then he “will not qualify for the administrative exemption.”
Confused? Apparently so is every one else. Merrill Lynch just announced this week that it is the latest firm to pay money to settle an overtime lawsuit.
Both stories are at the Brokers Legal Center at SECLaw.com
Before anyone jumps on me, I understand the legal issue, I don't understand the political, or public relations issue. It is not good for brokers. And does anyone have a handle on how much money the average class member received in these class actions?
What is even more puzzling is the fact that the Department of Labor is having a tough time with the legal issue. In this month's issue of Registered Rep, Halah Touryalai has a story reporting that the DOL issued an eight-page letter in responding to the SIA inquiry as to whether registered reps are, in fact, entitled to overtime pay.
According to the article, registered reps are not covered by Fair Labor Standards Act of 1938 under the “administrative exemption" and thus are not entitled to overtime. However, in the same letter the DOL indicates in a footnote that if a rep’s “primary duty is selling investments to clients” then he “will not qualify for the administrative exemption.”
Confused? Apparently so is every one else. Merrill Lynch just announced this week that it is the latest firm to pay money to settle an overtime lawsuit.
Both stories are at the Brokers Legal Center at SECLaw.com
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