David Kirkpatrick

August 9, 2010

SEC knocking at the door? Cooperate

Filed under: Business, Politics — Tags: , , , , , , — David Kirkpatrick @ 11:18 am

Well, unless you’re certain you’ll be found innocent of any charges the SEC is bringing to bear. If you’re eventually going to get nailed, cooperating will garner a lower penalty.

From the link:

A new study finds that it may pay — at least in dollar terms — to help the SEC by sharing results of internal investigations and keeping the public informed when something has gone awry. Rebecca Files, an accounting professor at the University of Texas at Dallas, claims that while cooperating with the SEC increases a company’s likelihood of getting sanctioned, being both cooperative and forthcoming in information shared with investors can result in lower penalties. “It’s just like going to the cops and turning yourself in,” she says. “You’ll still have to pay some cost for your actions, but the penalty will be significantly reduced.”

Files based her findings on a study of 1,249 restatements made between 1997 and 2005, 10% of which resulted in a sanction against the company or its managers. She drew her conclusions on how forthcoming companies were about their problems in press releases and 8-Ks, as well as how quickly they came forward after a problematic reporting period. Since the SEC’s dealings with these companies occur behind closed doors, she could not know how fully cooperative they were in any investigation.

April 16, 2010

SEC hits Goldman Sachs with fraud

I blogged on this very topic back in late December, and now the SEC is cracking down hard. As one  financial industry insider quoted in the second link says, “This is big.”

From the second link:

Goldman Sachs Group Inc was charged with fraud on Friday by U.S. securities regulators in the structuring and marketing of a debt product tied to subprime mortgages.

The Securities and Exchange Commission lawsuit alleges that Paulson & Co, a major hedge fund run by the billionaire John Paulson, worked with Goldman in creating the collateralized debt obligation, and stood to benefit as its value fell, costing investors more than $1 billion.

Fabrice Tourre, a Goldman vice president who the SEC said was principally responsible for creating the product, was also charged with fraud.

Paulson has not been charged. “Goldman made the representations here to the investors, Paulson did not,” SEC enforcement chief Robert Khuzami said on a conference call.

Goldman said in a press release that the SEC’s charges are completely unfounded in law and fact and it will vigorously contest them.

The lawsuit, filed in Manhattan federal court, marks a dramatic expansion of regulatory efforts to hold people and companies responsible for activity that contributed to the nation’s financial crises. It also comes as lawmakers in Washington debate sweeping reform of financial industry regulation.

February 25, 2010

New SEC rule is a short-selling speed bump

Filed under: Business, Politics — Tags: , , , , — David Kirkpatrick @ 12:44 pm

I stridently opposed restrictions on short-selling last April, but added this caveat:

I agree some regulation [ ... kills me to write that] in the financial and public sector needs to come to pass, but this accomplishes nothing aside from cheap public relations. If the markets are so weak selling short is capable of breaking them, maybe they should be broken.

Not too sure this move by the SEC is the answer, but it does seem measured and could well fall under the “some financial regulation is necessary” rubric I created in the previous blog post. I don’t like the idea the SEC is stifling the open market, but given the amount of pure jacking around the market has endured over the last two years, curbing “spiraling sales sprees” is probably not that bad an idea. It’s tough to remain a market purist in the face of market failure and the reality of ongoing market tinkering.

From the second link:

Federal regulators on Wednesday imposed new curbs on the practice of short-selling, hoping to prevent spiraling sales sprees in a stock that can stoke market turmoil.

The Securities and Exchange Commission, divided along party lines, voted 3-2 at a public meeting to adopt new rules.

The rules put in a so-called “circuit breaker” for stock prices, restricting for the rest of a trading session and the next one any short-selling of a stock that has dropped 10 percent or more.

Short-sellers bet against a stock, in a practice that is legal and widely used on Wall Street. They borrow a company’s shares, sell them and then buy them when the stock falls and return them to the lender — pocketing the difference in price.

The SEC move followed months of wrestling with the controversial issue. The SEC asked for public comment last April on several alternative approaches to restraining short-selling, and a bipartisan group of senators have been pushing the agency to act or face legislation.

The agency got more than 4,300 comments on the issue.

November 5, 2009

No more Sarb-Ox for small business?

This should be welcome news.

From the link:

Small businesses would be granted a permanent reprieve from complying with part of the Sarbanes-Oxley corporate reform laws, under a draft U.S. House of Representatives bill discussed on Tuesday.

Small companies have not had to comply fully with the rules since the Sarbanes-Oxley law was approved in 2002 in response to the Enron and WorldCom corporate scandals.

Companies with a market capitalization below $75 million have argued that they faced disproportionately higher costs compared with larger companies and have convinced regulators to delay compliance at least five times.

The Securities and Exchange Commission is now requiring small companies to report on the effectiveness of their internal controls as of June 15, 2010.

But Republicans, hoping to thwart this SEC requirement, introduced an amendment on Tuesday to a House Financial Services Committee draft bill to do just that.

September 18, 2009

SEC to ban flash orders

Filed under: Business, Politics — Tags: , , , — David Kirkpatrick @ 5:06 pm

Want a peek into the dirty world of high finance and get a more detailed picture of the total fail of the Securities and Exchange Commission? Check out this NYT article.

From the link on how flash orders were abused:

Critics say flash orders favor sophisticated, fast-moving traders at the expense of slower market participants. Using lightning-quick computers, high-frequency traders often issue and then cancel orders almost simultaneously and get an early peek at how others are trading.

And getting a bit more granular on the abuse:

Getting flashed an order offers traders a distinctive edge. When buy and sell orders come into an exchange, they are first flashed to those paying to see them for 30 milliseconds — 0.03 seconds — before they are available to everyone else. In the blink of an eye, the systems can detect patterns and get a jump on other investors. Before others even sees the order, high-frequency traders swoop in and then out.

July 17, 2009

Cuban dodges SEC bullet

Filed under: Business, Politics — Tags: , , , , — David Kirkpatrick @ 3:06 pm

Mark Cuban won an insider trading case brought by the SEC after dismissal. If I’m remembering correctly, in Cuban’s brash defiance (imagine that) of the original SEC charges he essentially admitted guilt. Looks like this might have been yet another case of SEC incompetence from the last several years, or maybe the original charges shouldn’t have been brought in the first place.

Either way it’s a little more egg on the Securities and Exchange Commission. It’s definitely a group with nowhere to go but up.

From the link:

A federal judge dealt a blow to the Securities and Exchange Commission on Friday when he dismissed its insider trading lawsuit against Mark Cuban, the controversial billionaire owner of the National Basketball Association’s Dallas Mavericks.

The S.E.C. asserted in a lawsuit in November that Mr. Cuban had sold shares of a Canadian Internet search company, Mamma.com, after receiving confidential information from its chief executive in a telephone call that the company was going to sell additional shares through a private offering in 2004.

But the S.E.C. failed to prove that Mr. Cuban had made an agreement with the company’s chief executive that he would not sell his own shares during that call, Judge Sidney A. Fitzwater of the Federal District Court in Dallas wrote in a 35-page decision released on Friday.

April 28, 2009

One bit of Madoff fallout?

A Securities and Exchange Commission with bared teeth and an ax to grind.

From the link:

In the annals of Ponzi schemes, Shawn Merriman is small potatoes. But when the Securities and Exchange Commission announced April 8 that it had charged Merriman of Aurora, Colo. with fraudulently obtaining $17 million to $20 million, the agency’s new director of enforcement, Robert Khuzami, seized on the news. “We pursue Ponzi schemes with a great sense of urgency,” he said, “and bring cases swiftly and successfully to protect investors.”

During the first three months of 2009, the SEC has brought over two-dozen emergency enforcement actions to “halt an ongoing fraud,” added Khuzami. Nine of the cases announced by the agency this year were related to Ponzi schemes; over the same period in 2008, there were none. Observers haven’t had to look far for the reason for the sudden interest.

 

April 9, 2009

Yet another Ponzi scheme

Wow, it seems Ponzi schemes have been alive and well across our land and it took a financial crisis to expose those critters to legal trouble.

From the link:

In the latest in a string of alleged Ponzi schemes, civil fraud charges have been filed against a Colorado investment manager who operated a $20 million operation that allegedly victimized dozens of investors in at least three states.

Shawn Merriman, 46, used some of his investors’ funds for personal expenses, including purchases of Rembrandt masterpieces worth millions of dollars and other artwork, according to a lawsuit announced Wednesday by the Securities and Exchange Commission.

Operating through Market Street Advisors, an Aurora-based firm he owned, Merriman allegedly promised investors annual returns as high as 20% from stock trading. He lost about $400,000 through aggressive investments by the initial investment fund he launched in 1995, the SEC said.

April 7, 2009

Short-selling regulation

I see the SEC is looking into placing new restrictions on short-selling. A terrible idea and one that sends the entirely wrong idea to the market. Do we have a capitalist economy, or not?

I agree some regulation [ ... kills me to write that] in the financial and public sector needs to come to pass, but this accomplishes nothing aside from cheap public relations. If the markets are so weak selling short is capable of breaking them, maybe they should be broken.

From the link:

The Securities and Exchange Commission is carefully weighing options for reining in rushes of short-selling that can sink stock prices and will work seriously on a plan to give shareholders access to annual corporate ballots for directors, the agency’s chief said Monday.

SEC Chairman Mary Schapiro and the other four SEC commissioners are scheduled to vote Wednesday on new short-selling rules _ a change being pushed by investors and lawmakers _ and are expected to put forward several separate proposals for public comment.

“We will be very deliberative in our effort to determine what is in the best interest of investors,” Schapiro said in an address to a conference of the Council of Institutional Investors, a group representing public, corporate and union pension funds that together have an estimated $3 trillion in assets.

The SEC will open for comment a proposal to reinstate the so-called uptick rule or take other measures designed to stem market dislocation caused by excesses of short selling, which involves betting against a stock.

March 30, 2009

SEC stops another Ponzi scheme

I guess it’s sort of like those 3D abstract imges from the early 90s. Once you are able to see the actual image in there, you can see them everytime …

The SEC’s release:

US SEC: SEC Halts $68 Million Ponzi Scheme Involving Caribbean-Based Bank and Swiss Affiliate
M2 PressWIRE via NewsEdge :

RDATE:26032009

Washington, D.C — The Securities and Exchange Commission has obtained an emergency court order halting a $68 million Ponzi scheme involving the sale of fictitious high-yield certificates of deposit (CDs) by Caribbean-based Millennium Bank.

The SEC alleges that the scheme targeted U.S. investors and misled them into believing they were putting their money in supposedly safe and secure CDs that purportedly offered returns that were up to 321 percent higher than legitimate bank-issued CDs. The SEC’s complaint alleges that William J. Wise of Raleigh, N.C., and Kristi M. Hoegel of Napa, Calif., orchestrated the scheme through Millennium Bank, its Geneva, Switzerland-based parent United Trust of Switzerland S.A., and U.S.-based affiliates UT of S, LLC and Millennium Financial Group. In addition to Wise and Kristi Hoegel and these entities, the SEC has charged Jacqueline S. Hoegel (who is the mother of Kristi Hoegel), Brijesh Chopra, and Philippe Angeloni for their roles in the scheme.

“As alleged in our complaint, the defendants disguised their Ponzi scheme as a legitimate offshore investment and made promises about exuberant returns that were just too good to be true,” said Rose Romero, Director of the SEC’s Fort Worth Regional Office. “This case demonstrates that investors need to be especially cautious when placing money with entities that may be outside the reach of U.S. regulators.”

According to the SEC’s complaint, at least $68 million was raised from more than 375 investors since July 2004. Millennium Bank, a licensed St. Vincent and the Grenadines bank, solicited new investors for its CD program through blatant misrepresentations and glaring omissions in its online solicitations and in advertising campaigns targeting high net-worth individuals. For example, in offering materials, Millennium Bank claimed that its parent, United Trust of Switzerland S.A., provides Millennium Bank with “over 75 years of banking experience, correspondent banking relationships, decades of knowledge in privacy and confidentiality as well as extensive training for our customer services professionals.” In fact, the SEC alleges, United Trust of Switzerland S.A. is not a Swiss-licensed bank or securities dealer. Potential investors visiting Millennium Bank’s Web site also were falsely informed that Millennium Bank is not affected by the global financial crisis and has a 100 percent client satisfaction record going back close to 10 years, and has its own affiliate asset management company with highly seasoned professionals who invest meticulously.

The SEC alleges that investor funds were not used for legitimate banking or investment activities. Instead, to create the appearance of a legitimate offshore investment, investors purchasing the CDs were instructed to deliver their investment checks to the offshore bank. The SEC alleges that the checks were then packaged and delivered to UT of S LLC’s office in Napa, Calif., where the checks were electronically deposited by a remote deposit machine into a UT of S, LLC account. The account, which is held at a U.S. financial institution, also received millions of dollars of investor funds via wire transfer. From that account, the SEC alleges, the defendants misappropriated a vast majority of the investor funds to enrich themselves and pay personal expenses, while making relatively small Ponzi payments to investors.

Judge Reed O’Connor, in the U.S. District Court for the Northern District of Texas, granted the SEC’s request for an asset freeze and emergency relief for investors.

The SEC charges that the defendants violated the anti-fraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934. The SEC’s complaint also alleges that the defendants violated the registration provisions of the Securities Act. The complaint seeks permanent injunctions, disgorgement together with prejudgment interest, and financial penalties.

Additionally, the SEC’s complaint names four individuals and four entities as relief defendants: Lynn P. Wise of Raleigh, N.C. (the wife of William J. Wise); Ryan D. Hoegel of Lincoln, Calif. (the brother of Kristi Hoegel); Daryl C. Hoegel of American Canyon, Calif. (the husband of Jacqueline Hoegel), Laurie H. Walton of Raleigh; and United T of S, LLC, Sterling I.S., LLC, Matrix Administration, LLC, and Jasmine Administration, LLC. All four entities are based in Las Vegas. The SEC’s enforcement action seeks an order compelling them to return funds and assets traceable to the Millennium Bank fraud.

http://www.sec.gov/news/press/2009/2009-68.htm

 

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<<M2 PressWIRE — 03/30/09>>

March 5, 2009

GM’s books look bad

Very bad according to its auditors. General Motors may fail after all. I can’t see any argument for propping up a firm weaker than wet tissue. Too big to fail? Maybe more like too screwed up to save.

From the link:

General Motors Corp.’s auditors have raised “substantial doubt” about the troubled automaker’s ability to continue operations.

The company revealed the concerns, raised by the accounting firm Deloitte & Touche LLP, in its annual report filed on Thursday.

GM has received $13.4 billion in federal loans as it tries to survive the worst auto sales climate in 27 years. It is seeking a total of $30 billion from the government. During the past three years it has piled up $82 billion in losses, including $30.9 billion in 2008.

GM says in its report that its auditors cited recurring losses from operations, stockholders’ deficit and an inability to generate enough cash to meet its obligations in raising substantial doubts about its ability to continue as a going concern.

The company said in its filing that its future depends on successfully executing the viability plan submitted to the government in February to justify the loans.

“If we fail to do so for any reason, we would not be able to continue as a going concern and could potentially be forced to seek relief through a filing under the U.S. Bankruptcy Code,” GM said in the annual report, filed with the U.S. Securities and Exchange Commission.

February 10, 2009

XBRL and corporate regulatory filings

This has been coming down the pike for a while and now it’s arrived — XBRL and corporate regulatory filings. This move is a great boon for investors and anyone else who regularly reads quarterly reports and other corporate financial filings.

From the link:

The Securities and Exchange Commission is officially moving corporate regulatory filings into the Internet Age. This morning the SEC issued a rule mandating that the 500 largest public companies start to file their financial results using the interactive data tagging language known as XBRL by April 13.

XBRL tagging is said to make financial statements more searchable and comparable.

By 2010, all so-called accelerated filers, amounting to about 1,800 public companies, must comply with the new rule, and by 2011 all public companies must do so.

During their first year of filing, companies are required to use XBRL for the three primary financial statements — the income statement, the cash flow statement, and the balance sheet — as well as for footnotes to the statements, which can be presented in a “block” format. However, by the second year, footnotes must be formatted in a detailed manner.

Companies will have a bit of breathing room regarding their first submission. The SEC is allowing the first XBRL filing to be submitted 30 days after the traditional filing on the regulator’s EDGAR database system. But all subsequent financial results must be filed on EDGAR and with XBRL tagging at the same time.

Linda Thomsen leaves SEC

Filed under: Business, Politics — Tags: , , , — David Kirkpatrick @ 2:49 pm

Good riddance.

From the link:

The SEC says Linda Thomsen is leaving to pursue opportunities in the private sector, but did not provide further details. She has been the agency’s enforcement director since May 2005.

Thomsen became a lightning rod for criticism over the SEC’s failure to detect the $50 billion Ponzi scheme allegedly run by money manager Bernard Madoff, despite red flags raised to the agency staff by outsiders over the course of a decade.

February 9, 2009

Watch out — the SEC is back in business

Filed under: Business, Politics — Tags: , , — David Kirkpatrick @ 4:47 pm

And baring teeth.

From the link:

The new head of the Securities and Exchange Commission is ending a practice that she said had slowed the agency’s enforcement efforts against corporate wrongdoing.

In her first public address as SEC chairman, Mary Schapiro said Friday that she was ending a two-year policy requiring agency enforcement attorneys to get approval from the commissioners before negotiating fines and penalties with companies accused of violations.

Schapiro said that practice “just sends the wrong message” and has caused delays. It is among the steps she said she is taking to revitalize the SEC’s enforcement efforts and bolster investor protection.

February 5, 2009

SEC fighting House in Madoff probe?

Looks like the House thinks so.

From the link:

House lawmakers on Wednesday accused the Securities and Exchange Commission of impeding their probe into the agency’s failure to uncover the alleged $50 billion Bernard Madoff fraud.

The clash between lawmakers and high-ranking SEC officials at a House Financial Services subcommittee hearing came after the man who waged a decade-long campaign to alert the regulators to problems in Madoff’s operations denounced the agency for its inaction. Whistleblower Harry Markopolos also said he had feared for his physical safety and would turn over new evidence that Madoff had not acted alone.

In loud, angry exchanges, lawmakers threatened to issue subpoenas to SEC officials to compel their testimony in the case.

January 23, 2009

Goodbye and good riddance Cox

I’m with this story. Couldn’t happen too soon and if nothing else, the SEC will be headed up with a lot more competence. Hopefully a whole lot more.

From the link:

Christopher Cox has packed up as chair of the U.S. Securities and Exchange Commission, leaving behind a demoralized agency that failed to spot Bernard Madoff’s alleged mega-fraud or forestall the collapses of Bear Stearns and Lehman Brothers.

His resignation took effect yesterday, a spokesperson said.

During Cox’s 3 1/2 years, the SEC was criticized by lawmakers, investors and its own inspector general as lacking aggressiveness and being deferential to Wall Street banks.

U.S. President Barack Obama picked a fellow Democrat, Mary Schapiro, the head of the U.S. brokerage industry’s self-regulator, to succeed the Bush administration appointee.

“I respect Chris Cox, but there’s no question that the commission has been much too passive in area after area under his leadership,” said law professor Harvey Goldschmid, a former SEC commissioner.

“The morale problems and the lack of public regard for the agency must be immediately addressed by Mary Schapiro.”

January 19, 2009

17 years of t-man failure with Madoff

Filed under: Business, Politics — Tags: , , — David Kirkpatrick @ 4:07 pm

This story really is amazing. Quite the juggling act from Madoff, that’s for sure.

From the link:

Seventeen years ago, federal investigators questioned for the first time whether Bernard L. Madoff was connected to a Ponzi scheme. Their inquiry centered on Frank Avellino, an accountant who had been funneling investors to Mr. Madoff since the 1960s.

The investigators did not get far. Within days, Mr. Avellino agreed to return to investors the money he and his partner had raised and to pay a small fine to the Securities and Exchange Commission. The inquiry petered out, and Mr. Avellino — represented in the case by Ira Lee Sorkin, the same lawyer who now represents Mr. Madoff — kept sending money to Mr. Madoff.

 

Now questions have again arisen about the ties between Mr. Madoff and Mr. Avellino. A lawsuit claims that Mr. Avellino warned his housekeeper, who had invested with him, that her money was lost 10 days before Mr. Madoff’s fraud became public.

Through his new lawyer, a former federal prosecutor, Mr. Avellino declined to comment on his relationship with Mr. Madoff.

But archived court documents from the 1992 case reveal numerous red flags that raise questions about the S.E.C.’s failure to examine Mr. Avellino and Mr. Madoff long before Mr. Madoff’s apparent Ponzi scheme spread worldwide. The documents show that Mr. Avellino and Michael Bienes, his business partner, kept almost no records at Avellino & Bienes, a firm that oversaw $440 million. When court-appointed auditors asked Mr. Avellino to prepare a balance sheet, he responded that ”my experience has taught me to not commit any figures to scrutiny.”

January 8, 2009

10 financial frauds

Filed under: Business — Tags: , , , , , , — David Kirkpatrick @ 5:15 pm

Interesting article, and yes, Enron comes in at number two.

From the link, here’s the mother of all financial fraud:

1. Charles Ponzi was one of the biggest swindlers in US history, and gave his name to the Ponzi “pyramid” scheme allegedly used by Bernard Madoff on Wall Street. Orchestrated after the First World War, Ponzi’s fraud centred on “international postal reply coupons”, designed to allow mail to be sent internationally. By acquiring these coupons abroad and exchanging them for higher value postage stamps in the US (essentially a form of arbitrage), Ponzi was able to make around a 400 per cent profit. Though this was not illegal, Ponzi advertised for investors to his scheme, promising them fantastic returns. He paid handsome windfalls to a handful of investors, which brought people flocking to his newly-formed Securities Exchange Company [SEC]. People mortgaged their homes and poured their savings into the company, which was accumulating colossal liabilities. Existing investors were paid off with the money of new investors. At the peak of his fraudulent scheme in 1920, Ponzi was making around $250,000 per day, an enormous sum for the time. The authorities slowly came to realise that, in order to cover all the investments made in the SEC, there would have to be 160,000,000 postal coupons in circulation. There were in reality only 27,000. Ponzi was indicted on 86 counts of mail fraud and sentenced to five years in prison in 1920.

I chose this one because Ponzi and Ponzi Schemes are all over the news in regards to the Madoff business.  Figured anyone who wasn’t familiar with the details would enjoy the history.

January 5, 2009

SEC changes oil and gas company reporting requirements

Filed under: Business, Politics — Tags: , , — David Kirkpatrick @ 9:29 pm

A release from the Securities and Exchange Commission:

SEC Modernizes Oil and Gas Company Reporting Requirements to Provide Investors With More Meaningful and Comprehensive Disclosure

FOR IMMEDIATE RELEASE
2008-304

Washington, D.C., Dec. 29, 2008 — The Securities and Exchange Commission today announced that it has unanimously approved revisions to modernize its oil and gas company reporting requirements to help investors evaluate the value of their investments in these companies.

“In the more than a quarter century since the SEC last reviewed its rules in this area, there have been significant changes in technology that have increasingly limited the usefulness of current disclosures to the market and investors,” said SEC Chairman Christopher Cox. “These updates to the SEC rules will help ensure more meaningful and comprehensive disclosure of information that, even though it does not appear on a company’s balance sheet, is of significance to investors in making informed investment decisions.”

John W. White, the Director of the SEC’s Division of Corporation Finance, added, “The Commission’s adoption of these rule amendments is the final phase of a key, long-term initiative of the Division of Corporation Finance and the Office of the Chief Accountant. These updated rules consider the significant changes that have taken place in the oil and gas industry since the adoption of the original reporting requirements more than 25 years ago.”

The Commission staff first recommended the issuance of a Concept Release for public comment. Those public comments were used to formulate the rule amendments that the Commission proposed earlier this year.

The new disclosure requirements approved by the Commission include provisions that permit the use of new technologies to determine proved reserves if those technologies have been demonstrated empirically to lead to reliable conclusions about reserves volumes. The new requirements also will allow companies to disclose their probable and possible reserves to investors. Currently, the Commission’s rules limit disclosure to only proved reserves.

The new disclosure requirements also require companies to report the independence and qualifications of a reserves preparer or auditor; file reports when a third party is relied upon to prepare reserves estimates or conducts a reserves audit; and report oil and gas reserves using an average price based upon the prior 12-month period rather than year-end prices. The use of the average price will maximize the comparability of reserves estimates among companies and mitigate the distortion of the estimates that arises when using a single pricing date.

* * *

The full text of the adopting release concerning these amendments will be posted to the SEC Web site as soon as possible.

# # #

 

http://www.sec.gov/news/press/2008/2008-304.htm

December 22, 2008

SEC falling down on the job

Of course this comes as no surprise. During his two terms, Bush 43 has actively undermined government at every turn. I enjoy small govenment as much as any libertarian could, but I also value competence (at the very least) for the government we must have.

Heckuva job there, Georgie.

From the link:

Before his downfall in an alleged fraud that may end up costing investors $50 billion, Wall Street money manager Bernard L. Madoff circulated a promotional message extolling his service to clients.

“Customers know that Bernard Madoff has a personal interest in maintaining the unblemished record of value, fair-dealing and high ethical standards that has always been the firm’s hallmark,” Madoff proclaimed in a brochure designed to drum up more business.

The brochure called attention to the high-tech trading side of his business that was supposedly honestly run and legitimate, but it also offers a glimpse of why the Securities and Exchange Commission was unable to stop Madoff in his tracks despite repeated warnings.

As financial markets have grown increasingly complicated _ which was the case with this part of Madoff’s operation _ the SEC has struggled to keep up with the changes.

The circumstance of this relatively tiny bureaucracy _ 3,567 employees including clerical workers _ is that of an agency overwhelmed.

December 18, 2008

Mary Schapiro to head Obama’s SEC

Filed under: Business, Politics — Tags: , , , , — David Kirkpatrick @ 12:47 pm

She has quite the job ahead of her.

From the link:

President-elect Barack Obama nominated Mary Schapiro as the next chairman of the Securities and Exchange Commission, calling on her to help overhaul the troubled U.S. regulatory system.

Obama said Schapiro, a one-time acting SEC chairman and a political independent, who currently heads the Financial Industry Regulatory Authority, is “known as a regulator both smart and tough, so much so that she’s been criticized by the very industry outsiders who we need to get tough on.”

Also from the link:

Noting that it’s rare for a president-elect to designate a new SEC chairman before taking office, Obama stressed the need for changes in the financial system. He had harsh words for the current administration’s regulatory oversight during a morning press conference, during which he also announced his nomination of former Treasury undersecretary Gary Gensler to chair the Commodity Futures Commission, and of Georgetown law professor Daniel Tarullo for a seat on the Federal Reserve Board.

November 17, 2008

SEC ropes a maverick

I think the SEC has much bigger fish to fry than busting Mark Cuban for adding a portion of one percent to his fortune, but I guess those little regulators need a diversion right now to compensate for the ongoing failure of epic proportions that is the Fed, the Treasury, and the rest of the alphabet soup of financial regulatory bodies.

I’m going to go out on a limb to suggest this action totally squashes Cuban’s tiny hope for owning the Chicago Cubs. MLB is that dumb.

From the link:

The Securities and Exchange Commission said Monday that it had charged Mark Cuban, the billionaire Internet entrepreneur and owner of the Dallas Mavericks basketball team, with insider trading for selling 600,000 shares of an Internet search engine company.

The S.E.C. said Mr. Cuban sold the stock in the company, Mamma.com, based on nonpublic information about an impending stock offering. The commission asserted that Mr. Cuban avoided losses in excess of $750,000 by selling his stock prior to the public announcement of the offering.

The commission filed a civil lawsuit against Mr. Cuban in Federal District Court for the Northern District of Texas, accusing him of violating federal securities laws. It said it was seeking to impose financial penalties and confiscate gains from the trades.

In its complaint, the S.E.C. asserted that Mamma.com invited Mr. Cuban to participate in the stock offering in June 2004 after he agreed to keep the information confidential. The S.E.C.’s complaint asserted that Mr. Cuban knew that the offering would be conducted at a discount to the prevailing market price and that it would be dilutive to existing shareholders.

October 2, 2008

Bailout news, jobless rate, short selling and rate cuts — oh, my

I’ve done a lot of blogging on the bailout and derided this ongoing process — including banning shorting some stocks (see more below on this) — as “corporate socialism.” I still don’t like the bailout, but now that the Senate passed its revised version I’m guessing the House will go along tomorrow unless the GOP stalwarts feel particularly feisty.

From the second link:

House members are getting another chance to vote on a financial bailout bill that has infuriated millions of voters after the Senate added tax cuts and other sweeteners and passed it handily.

Senators advanced the much-criticized measure in a 74-25 vote late Wednesday, sending it to the other side of the Capitol for a showdown vote expected Friday. The move was calculated to win over enough dissenting House members to get the bill through and reverse Monday’s stunning defeat in the House, party leaders there planned to press rank-and-file members Thursday for the dozen converts they believe they need.

But bailout news isn’t the only story with this ongoing financial crisis. Go below the fold for more on the jobless rate, the latest on shorting and possible additional rate cuts.

(more…)

September 24, 2008

The no-short list grows

I’ve already put my thoughts on the anti-capitalist move by the SEC to ban the short selling of certain stocks out there. Predictably everyone wants a little protection from the free and open market leading to more companies being added to the no-short list.

Here’s a NYT article via AccountantsWorld covering the very subject.

From the second link:

The list of companies that regulators are protecting from short-sellers keeps growing, as do the questions surrounding it.

By Monday evening, the number of companies on the list rose to nearly 900, from 799 on Friday, when the Securities and Exchange Commission sought to restrict bearish bets against financial companies to help stabilize the markets.

 

Nearly every major bank is now included, along with large insurance companies and others. Trading in bank stocks withered on Monday amid uncertainty over the rules and the sweeping bailout that the Bush administration has proposed for financial companies.

But many questions remain. Some analysts — and a few firms initially left off the list — complained that the initial S.E.C. roster was incomplete.

Want to see just how ridiculous this whole process becomes once the stinky can has been opened? Here’s a bit from later in the article:

By Monday evening, the Ford Motor Company, which also owns a bank, was added to the list.

September 18, 2008

Cracking down on shorting financial stocks

This move by the SEC and the U.K.’s Financial Services Authority is boneheaded and ridiculous. Free markets are free markets. Bans and increased regulation on legitimate transactions are an unacceptable level of governing in our system.

Right now the United States is not truly a capitalist nation, and the GOP (if you want to count GOP-appointed commissioners) has failed our land in every way possible.

Change can’t happen soon enough.

From the link:

Panic is ugly.

And nowhere is it uglier than in emergency moves by regulators to restrict short-selling, trading that lets investors profit from a stock’s decline.

Indeed, by targeting short selling, the U.K.’s Financial Services Authority and the U.S. Securities and Exchange Commission could even prolong the agony for financial stocks.

The FSA has banned short-sales of financial-company shares until January. The SEC is considering disclosures for short-sellers more onerous than for investors owning shares.

Regulators are scared by recent market events. They are going down this road because they want to arrest the rapid decline in certain bank shares. The assumption is that short-sellers have mounted bear-raids on companies that live or die by confidence, stoking market-wide fear.

But targeting an integral stock market activity, such as short-selling, carries risks. For example, short-selling is an important risk-management tool, allowing investors to hedge their long positions.

August 7, 2008

Ernst & Young hit with almost $3M SEC fine

Filed under: Business, Politics — Tags: , , , — David Kirkpatrick @ 5:43 pm

The firm violated auditor independence rules.

From the CFO.com link:

Ernst & Young LLP agreed to pay more than $2.9 million to the Securities and Exchange Commission to settle charges that it violated auditor independence rules by co-producing a series of audio CDs with a man who was also a director at three of E&Y’s audit clients.

According to the SEC, Ernst & Young collaborated with Mark C. Thompson between 2002 and 2004 to produce a series of audio CDs called The Ernst & Young Thought Leaders Series. The CDs featured E&Y partners interviewing CEOs and CFOs in various different industry sectors, which the SEC says was part of an effort by E&Y to promote its partners as experts in specific industries.

That relationship, said the SEC, violated independence rules because Thompson was serving on the boards at several of E&Y’s clients during the period when the CDs were produced. The SEC censured Ernst & Young and fined the firm $2,918,987. It also censured partner John F. Ferraro for setting up the relationship, and partner Michael G. Lutze for failing to alert one of his audit clients — apparently Best Buy — after learning of the relationship. Lutze was also suspended from practicing before the commission for one year. The SEC also issued a cease and desist order against Thompson. E&Y, Thompson, Ferraro, and Lutze settled with the SEC without admitting or denying its findings in the case.

Thompson is chairman of his own private business, Executive Powertools, a training firm dealing with executive leadership. Although the SEC did not name the audit clients on whose board Thompson served, SEC filings and Thompson’s biography on his own website show that he served as a director for E&Y clients Best Buy, Korn/Ferry, and Teletech Holdings during the period detailed by the SEC, and served on Best Buy’s audit committee from March 2000 to August 2003.

July 28, 2008

SEC and Fed want to toughen rules

This AccountantsWorld.com article outlines an effort by the SEC and the Federal Reserve to press Congress for additional regulatory and supervisory powers.

From the link:

At a Congressional hearing on how to modernize financial regulation, the S.E.C. and the Fed laid out similar, if somewhat competing, visions for a new regime capable of monitoring commercial and investment banks to ensure they remain financially sound in order to prevent another credit crisis.

 

Both the S.E.C. chairman, Christopher Cox, and the New York Federal Reserve Bank president, Timothy F. Geithner, said that the current patchwork of regulatory agencies, much of which dates back to the Depression of the 1930s, deserved part of the blame for the yearlong financial market turmoil.

But Mr. Cox said his agency should oversee investment banks, while Mr. Geithner said the Fed must have a direct supervisory role over any firms that borrow from the central bank.

”It’s very important that we have a role in consolidated supervision of these institutions because you will not have good judgments made by this central bank, this Federal Reserve, in the future unless we have the direct knowledge that comes with supervision,” Mr. Geithner told the House Financial Services Committee.

July 24, 2008

Fair-value financial reporting rewards deadbeats

Filed under: Business, Politics — Tags: , , , — David Kirkpatrick @ 3:48 pm

This is a CFO.com story from earlier this month with a distressing bit of news about fair-value reporting:

Panelists of a Securities and Exchange Commission roundtable on fair-value financial reporting on Wednesday clashed over an accounting provision under which a company can boost its reported earnings by becoming less creditworthy.

In the provision, paragraph 15 of standard number 157, the Financial Accounting Standards Board’s controversial new stricture on fair-value accounting, FASB states that the fair value of a company’s liability must reflect the risk that the company won’t pay it back. Thus, as the risk that companies won’t pay back their debts rises, their reported liabilities actually decrease–and may even provide an earnings boost.

Illogical as the provision sounds—and it sounds illogical to many—quite a few companies are already making hay by using it. The rewards for potential deadbeats can be large, according to a Credit Suisse report on the first-quarter 2008 10-Qs of the 380 members of the S&P 500 that have either a November or December year-end close, the first big companies to adopt FAS 157. For the 25 companies with the biggest amounts of liabilities on their balance sheets measured at fair value, widening credit spreads—an indication of a lack of creditworthiness—spawned first-quarter earnings gains ranging from $11 million to $3.6 billion, according to the study.

July 11, 2008

New 10-K “executive summary” requirement coming

As the title to this link puts it, “Is There an “Elevator Speech” in Your 10-K’s Future?”

Here’s the lede:

The Securities and Exchange Commission’s advisory Committee on Improvements to Financial Reporting (CIFR) voted unanimously on Friday to move forward with its proposal to require a new “executive summary” in annual and quarterly reports filed with the SEC.

As proposed, the executive summary would be a plain-English description of a reporting company’s business, financial condition, and operations. It would take a “layered approach” that stresses the most important information but then cross-references the location of fuller discussions elsewhere in a 10-Q or 10-K.

June 27, 2008

Is the SEC growing instead?

Filed under: Business, Politics — Tags: , , , , — David Kirkpatrick @ 12:22 pm

This post is a follow-up to one earlier this week about a Wall Street Journal article stating the SEC is on its way out and the way the Bear Stearns debacle was handled is a symptom of the disease within the commission.

Christoper Cox, current chairman of the SEC, has vehemently fired back (albeit internally) in response to Monday’s WSJ story.

From the second link:

Rarely in its 74-year history has the Securities and Exchange Commission been so squarely on the griddle, with new reforms seeming to target its very existence and Chairman Christopher Cox personally being criticized as “peripheral,” in the words of a critical Monday profile on the Wall Street Journal’s front page.

Cox has said little publicly about the criticism, much of which relates to his and the SEC’s role in dealing with the collapse of Bear Stearns and its later bailout managed by the Fed. But in internal memos made available to CFO.com, the chairman clearly seems to be simmering close to the boiling point.

In a 17-paragraph memo to the entire SEC staff that started with a note that he was “very disappointed” by the Journal story, Cox defended the SEC’s role in dealing with Bear as “one of a high degree of inter-agency cooperation.” And he noted that the SEC’s position in the case of the bailout was legally limited because the agency could not be “cast in the role of regulator of the merger and also potentially enforcer of the laws against fraud in connection with the transaction.”

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