The Return of the UpTick Rule

The SEC is considering restoring the uptick rule, which requires that a stock trade at a price higher than its previous price, before a short sale can be made.

The rule was abolished by the SEC in 2007, but was designed to prevent short sellers from beating a stock into the ground by continous short selling. Some pundits are claiming that the rule will give the market a shot of confidence, and help to drive a recovery.

The WSJ reported the story today.

The Credit Crisis Visualized

Very well done explanation of the credit crisis. Given the medium and a running time of 10 minutes, there are some oversimplifications, and one could quibble with some of the underlying assumptions, but if you want a good overview of what happened, spend 10 minutes here. No politics, no fingerpointing, just an explanation.

Friday Q&A: Can I sell stocks in a foreign country?

Friday Q&A - I am licensed in the US with all of the applicable securities licenses. I would like to being servicing customers in England, France and Spain. Do I need any additional licenses?

Having a license to provide investment advice in the United States does not mean that you can automatically charge for that advice everywhere else. Most countries (though not all) have their own securities laws and rules which govern the activities of persons offering or selling securities in their country. Many countries have adopted regulations similar to those in the United States, some have very different regulations, and others have very few.

Despite the fact that you do not reside in the foreign country, you need to comply with their regulations regarding the offer and sale of securities. It might be tempting to believe that a US broker-dealer is beyond the reach of a foreign securities regulators, but that is simply not the case, as doing business in a foreign country subjects you to the jurisdiction of that country. This issue is really just theoretical, since FINRA and the SEC may consider violation of another country's securities laws a violation of US securities laws.

FINRA has previously released two Notices to Members regarding these issues. The first, NASD Notice to Members 98-91, was titled "NASD Alerts Members To Their Obligations Concerning Cold Calling And Advertising To Persons In The United Kingdom" and was apparently released by the NASD at the request of the securities regulators in the United Kingdom. Two years later a second Notice to Members was released, again reminding members of their obligations in foreign countries. NASD Notice to Members 00-02 - NASD Alerts Members To Their Obligations Concerning Soliciting Business In Foreign Jurisdictions.

On December 10, 2001, the NASD released NASD Notice to Members 01-81 titled "NASD Provides Interpretive Guidance On The Conduct Of Business Abroad." The release is an attempt to provide an overview and interpretation of the NASD's rules regarding overseas operations, and is in a question and answer format, dealing with some of the more common issues in foreign business operations.

Current NASD rules on the topic include:

* The NASD permits firms to register certain persons working in foreign offices as Foreign Associates without requiring qualification examinations (NASD Rule 1100).

* The NASD authorizes member firms to maintain registrations for persons who are engaged in the investment banking or securities business of a foreign securities affiliate or subsidiary (NASD Rules 1021(a) and 1031(a)).

* The NASD allows, in limited circumstances, member firms and persons associated with a member to pay transaction-related compensation to non- registered foreign persons, or foreign finders (NASD Rule 1060(b)).

* The NASD permits persons registered in certain foreign countries to work in the U.S. as general securities representatives after taking an abbreviated examination (NASD Rule 1032).

A careful reading of the Notice, and other comments from the NASD reflect a growing concern with operations in foreign countries. Readers are advised to move carefully into these markets, as violation of the applicable regulations can subject one to civil and criminal prosecution in the foreign country, as well as disciplinary action in the United States.

FINRA Raises Limit for Single Arbitrator Cases

For cases filed after March 30, 2009, FINRA has raised the threshold for a three arbitrator panel to $100,000.

I am not so sure this is a wise decision. While I understand that the single arbitrator will be "chair-qualified" there are plenty of "chair-qualified" arbitrators with little or no experience.  For a case where the damages are $90,000, I think I want the benefit of three arbitrators.

Watch for the number of cases with inflated damage claims to get inflated. That $90,000 case is going to have a damage claim of $125,000 to avoid this change.

FINRA Notice 09-13

The Inside Story on the Breakdown at the SEC

A tough piece from Time Magazine. Starting with this quote: "[l]ong an evangelist for deregulation, the affable 56-year-old conservative former California Congressman took a custodial approach to a job that called for muscular leadership."

It doesn't get any better for Chairman Cox from there. According to the article, he was absent during the discussions and bailout of Bear, he let Commissioner Atkins run loose, his policy that required staff to seek permission to seek penalties demoralized the agency.

I am not so sure that we can lay the entire blame for the SEC's failures at the feet of Chairman Cox, but Time sure gives it a try.

Amended SEC Complaint Accuses Stanford and CFO of Running Ponzi Scheme

The Securities and Exchange Commission has filed an amended complaint against R. Allen Stanford that alleges the Texas billionaire ran a huge Ponzi scheme and took at least $1.6 billion of investor money in personal loans. The original complaint made allegations of misrepresentation regarding the CDs, and did not make allegations of a Ponzi scheme.

Amended SEC Complaint Accuses Stanford and CFO of Running Ponzi Scheme

Stifel Nicolaus to Buy Back ARS from Clients

According to the St. Louis Business Journal, Stifel may buy more auction rate securities from its clients, pursuant to its voluntary repurchase plan. Earlier this month Stifel said it planned to spend between $35 million and $40 million to repurchase some of the illiquid auction rate securities held by investors

Ten More Madoffs?

I ignored this the first two times I saw it referenced, but this rumor is gaining steam. I have no doubt that there are 10 more Ponzi schemes out there, I am working with folks involved in two more in New York alone.

But there is one bigger than Madoff? I sincerely doubt (hope?) that is not true.

FBI makes first arrest in Stanford fraud case

The FBI made the first arrest in the $8 billion Stanford Financial Group fraud investigation on Thursday, detaining chief investment officer Laura Pendergest-Holt on federal obstruction charges.

Reuters speculates that prosecutors are getting ready to charge Allen Stanford, the group's Chairman. Standford is already the subject of SEC charges accusing him of running an $8 billion dollar fraud.

Madoff Made No Trades

"We have no evidence to indicate securities were purchased for customer accounts"

And there it is. That statement, from the court appointed Madoff Trustee tells the story, and is the death knell for Madoff investors. There is no money, there are no securities, there were no trades.

And that means no SIPC funds, no discovery of missing securities, no government funded recovery. We discussed this months ago, and unfortunately it looks like it will be the case. SIPC Disappointment Down the Road for Madoff Investors.

The Trustee is busy recovering assets, $950 million so far, but a far cry from the billions that were lost.

And the second part of the story, the lawsuits against investors with profits are on the way. Yes, as we posted months ago,(Investors as Defendants) the Trustee is going to attempt to recover profits from investors who had profits. A long standing, and often misunderstood legal concept permits the practice, and will cause havoc for those investors who thought they escaped the scam.

There are defenses available to those profitable investors, but there are going to be lawsuits. Be prepared.